Mortgage insurance (sometimes referred to as "Mortgage Default Insurance") is a type of insurance applied to mortgages which are classed by financial lenders as "high risk". The type of loan (personal loan, investment loan, commercial loan etc) and the debt ratio of the loan will determine how much mortgage insurance must be paid (if any).
Mortgage insurance can be either applied to the loan principal or if preferred can be paid before the loan commences. Because most people make this as part of their loan, it will influence their monthly mortgage repayments by a small amount each month.
Mortgage insurance for personal loans is normally very standard across most financial lenders , and is based on the debt ratio. A mortgage which represents more than 80% of the properties value is considered high risk and requires mortgage insurance.
|Debt Ratio||Mortgage insurance rate|
- Example 1: A personal loan to buy a $300,000 home with a down payment of 5% will usually equate to ~$10,250 in mortgage insurance which is added to the loan principal.
- Example 2: A personal loan to buy a $300,000 home with a down payment of 20% will not have lenders mortgage insurance added as this loan is not considered as high risk by financial lenders.
From these two examples we can see by saving a little bit more for your first home might just save you a lot in monthly interest and also go towards building a stronger base equity in your property.