2 in 5 home buyers don’t understand lenders mortgage insurance
Yet nearly a third know they have to pay for the insurance policy.
Research by Mortgage Choice has revealed 42.1% of prospective home buyers don't understand lenders mortgage insurance, even though 32% said they would need to pay a lenders mortgage insurance (LMI) premium to get into the property market.
Mortgage Choice CEO Susan Mitchell said the majority of home buyers displayed a misunderstanding of what LMI is and how it works.
"According to our survey, only 32.1% of prospective buyers accurately stated that LMI is designed to protect the lender if a borrower can't repay their mortgage," Mitchell said.
"Another 8.2% of respondents thought LMI protected the borrower, while 17.6% believed it protected both the borrower and the lender."
Millennials showed the worst understanding of LMI, with 47.3% of buyers aged 29 and under misunderstanding the insurance product.
Mitchell said the misunderstandings around LMI were worrying given the likelihood that many first home buyers would pay an LMI premium.
"According to CoreLogic, the median dwelling value in Australia is $554,605, and for a first home buyer to avoid LMI, they would need to save $110,921 for a 20% deposit and they would still need to have additional funds to cover costs such as legal fees and stamp duty. That is quite a large sum to save and it only increases if a buyer is looking in cities such as Sydney and Melbourne," she said.