When The Insurance Company is The Home Buyer's Friend

Graeme Salt

Insurance companies are like banks, Telstra and gas companies: we have little or no choice but to deal with them; we wish they offered better service; but there is not much we can do without them.


However, there are times when insurance companies are the friend of the home buyer – especially the home buyer whose application would otherwise be turned down. It’s hard to imagine it, but when it comes to property purchases, these are times when companies such as QBE and Genworth are the white knights.


The issue is this. Banks don’t like risk and the bigger the proportion of a home purchase a bank has to fund, the more the bank worries. Globally, banks tend to be comfortable lending up to 80 per cent of the value of a property, which means that if a home buyer has a deposit of at least 20 per cent of the value of a property, the banks are relatively relaxed (well as relaxed as bankers ever get!).


So what happens if you haven’t saved up 20 per cent of the value of your dream home? Well, in some countries your home loan application would be turned down flat (in the UK, the average loan is for 75 per cent of the value of a property.)


But, in Australia, this is where the insurance companies ride in to save you. If you have to borrow more than 80 per cent of the value of a property, the banks will ask you to take out, what is called Lenders’ Mortgage Insurance. It is not normally that expensive, and can often be added on to the loan – so that you pay for it over 30-years.


Because the banks are insured, most will be lend up to 95 per cent of the value of a property. Lenders Mortgage Insurance is typically beneficial for first home owners, who have not had enough time to build up lots of savings.


So, once you have moved into your dream home, you may want to raise a glass or two. The first glass, of course, should be raised to your wonderful mortgage broker who negotiated such a good deal for you. But the second glass could also be to your insurance company (seems a bit weird doesn’t it?).


Graeme salt is a Sydney-based mortgage broker.  For a no-obligations consultation on your home loan needs, Graeme can be contacted on 02 9922 5055.