Sunday, June 17, 2012

Know Why You Need Lenders Mortgage Insurance

One of the things borrowers need to be aware of when obtaining a mortgage is the presence of  lenders mortgage insurance or LMI.

This insures or protects lenders from suffering a loss in case you default or fail to repay your loan. This premium is added on the things you need to pay, so you have to make sure you know everything about it.

If you are a first-time homebuyer, it is critical that you have a good understanding of what lenders mortgage insurance is so you won't be surprised if your lender informs you that you need to pay a premium. It will also keep you from being shocked in case the loan amount you receive is lower than you expect. It could be possible that the lender has taken the amount of the insurance from the loan. 

Lenders require borrowers to pay for insurance to protect them from losses in case they fail to pay off the loan. Home loans that are valued 80% or more of the property value will definitely require LMI payment. For those who are applying for low doc loans, borrowing more than 60% of the property value, a premium also has to be paid.

This is a one-time payment. Do not be fooled by some lenders who will attempt to include this in your monthly payment. It should never affect your interest rate.

Each lender has a particular insurer that they work with. When someone applies for a loan and it is already gets advanced, the insurer will determine how much insurance you need to pay.

This is typically determined by allotting a certain percentage of the amount you are borrowing. Because lenders and insurers work together, insurers will also need to approve mortgage applications. In some cases where both parties work closely together, the lender can approve the loan applications in behalf of the insurer.

If you plan to apply for a loan, remember that you cannot choose the mortgage insurer the way you can with a lender. That means the only way to find a great deal on your premium is to carefully choose your lender.

Given the fact that lenders and mortgage insurers determine how much lenders mortgage insurance you are going to pay, you won't be able to control how much you are going to be charged. The main rule here is the lower the amount you're borrowing, the lower your LMI is.

It's also in your best interest to estimate how much insurance you are going to pay. You can do this by using a mortgage insurance calculator. There are lots of these available online. These are going to be extremely useful when you shop around for lenders and mortgage insurance companies. If you do your homework properly, you will be able to find the best rates.
Lenders mortgage insurance is designed to protect only the lenders. This is meant to keep them from suffering a loss in case borrowers fail to repay the loan. By insuring the loan, lenders would be able to help more people to get the opportunity to become homeowners.

But it does not mean borrowers cannot benefit from this. Although some people may think that this is just another expense, it is actually a way to help borrowers get qualified for mortgage loans since lenders are not going to be as strict as they were without a lenders mortgage insurance.

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