Mortgage Broker Melbourne

What is Mortgage Insurance?

Mortgage Insurance

Mortgage insurance is usually required when a lender provides a loan that covers more than 80%* of the purchase price. It is designed to cover the lender for their risk and protects them in the event that the property needs to be sold. If the lender suffers a loss on the sale, they claim payment from the mortgage insurance company.

The insurer then pursues the borrower for the amount they paid the lender. The insurance offers the borrower no protection whatsoever and is a once off charge which can be added to the loan amount in certain circumstances. The price of the premium depends on the loan to value ratio of the property purchased.

Loan to value ratio (LVR)

This is the percentage of the value of the property you are borrowing.
For example:
380,000 loan amount
400,000 purchase price    x 100 = 95%

In this instance the loan to value ratio (LVR) is above 80% therefore mortgage insurance is payable.

*Rules for low documentation loans differ.