What is Mortgage Insurance?
Mortgage insurance is a type of financial protection for lenders. It’s usually required when homebuyers put down less than 20% of the home’s value. This insurance safeguards the lender in case the borrower can’t repay the loan.
Types of Mortgage Insurance: LMI and PMI
- Lenders Mortgage Insurance (LMI): Common in Australia, LMI is a one-time fee paid by the borrower to protect the lender.
- Private Mortgage Insurance (PMI): More common in the U.S., PMI involves monthly payments made by the borrower to the lender.
Benefits for Lenders and Borrowers
- For Lenders: It lowers the risk of lending to borrowers with smaller down payments, making it easier for more people to buy homes.
- For Borrowers: It allows buyers to purchase a home with a smaller down payment, helping them achieve homeownership sooner.
Important Note:
Mortgage insurance is not the same as homeowners insurance. Homeowners insurance protects you against damage, theft, or liability, while mortgage insurance protects the lender.
Understanding mortgage insurance is essential, especially for those making smaller down payments. It plays a key role in the homebuying process.
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