Mortgage Protection vs Mortgage Insurance

Mortgage Protection is very different to mortgage insurance (also know as Lenders Mortgage Insurance).

Essentially Mortgage Protection is specifically designed to protect the insured person. Generally speaking, if the life insured dies or is made totally and permanently disabled the life insurance company will pay out a lump sum to the life insured (or  to their estate) to enable them to use this money to pay off the mortgage. This allows this person or estate to pay off the mortgage and own the property out right. Therefore the family is left a position where they can live in their house without any further obligations. There are generally two types of mortgage protection and it is essential you take out the most suitable type of mortgage protection insurance policy that meets your personal requirements.

Mortgage Insurance (Lenders Mortgage Insurance) protects your home loan provider or lender. If you no longer are able to pay for your mortgage this insurance is designed to ensure that the lender or bank does not lose any money in the process.

When is Mortgage Insurance (Lenders Mortgage Insurance) required?

Each mortgage provider differs however generally speaking if you borrow more than 80% of your proposed property’s value, or are taking out a low-doc home loan, you are highly likely required to need mortgage insurance. Generally once your mortgage provider has had the valuation completed and is happy with your personal finances your lender will have provisional acceptance subject to mortgage insurance approval.

Prior to 18 months ago mortgage insurance was almost a tick in the box process with approvals for the insurance completing within roughly 24 hours. However after the global financial crisis (GFC) the turn around times and scrutiny has increased tremendously. It now can take anywhere from 4-5 days for the mortgage insurance company just to review your file & if they require further information or clarification on an item you should not expect a response until an additional 4-5 days. Yes mortgage insurance companies are really tightening their belts to ensure they do a full due diligence on each application before any document is signed off.

This one off premium or payment which is paid for by you and is  required to be paid at the time of settlement or some providers allow payment to be included in the loan for the property.

Providers of Lenders Mortgage Insurance in Australia

Currently there are only two providers offering Lenders Mortgage Insurance. These include Genworth, and QBE LMI whose rates are fairly similar. The cost of your loan and LVR will usually give you an indication as to how much your mortgage insurance will cost. To get an indication on how much your mortgage insurance may be it is best to contact your mortgage adviser.

However if you are looking to protect yourself rather than your lender, contact us to find an appropriate mortgage protection policy to suite your needs or request free mortgage protection quotes.

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December 2009