What is lenders mortgage insurance?

Your lender may require mortgage insurance if you are borrowing 80% or more of the value of the property (60% or more for low doc loans). You pay a one-off insurance fee, but the amount is added to your loan amount, so it costs nothing up-front.

You should understand that mortgage insurance protects the lender, not you! It protects the lender if you default on the loan and the property is sold for less than the outstanding loan balance.

The bad news is that even though the insurer pays the lender the difference between the loan balance and the amount recovered by selling the property, you are still liable to the lender for that amount.

The only benefit of this insurance for you is that you can purchase a property with a smaller deposit.

If you are looking for insurance that protects you in the event of loss of income, consult your adviser about income protection insurance. You should also review your life, sickness, and accident insurance. Your repayment obligations don't go away just because you experience misfortune!