Mortgage Insurance

Mortgage Insurance is an insurance cover which protects a lender from loss in the case of default by a borrower. The insurance is only usually required for borrowing levels in excess of 80% of the value of a residential property. The premium for the mortgage insurance (which is a once only premium paid on settlement) can be very expensive, particularly when the amount borrowed climbs past 90% Loan to Valuation Ratio.

It is not only the cost of the mortgage insurance that can be a problem, but also the fact that the loan has to be approved by the mortgage insurer as well as the lender. In most cases, a mortgage insurer will not approve a transaction where the purpose of the loan is to purchase a new business. It is for these reasons that where possible, the maximum amount borrowed against residential property should not exceed 80%.