There are two types of insurance in the home loans sphere – mortgage protection insurance and lender mortgage insurance.
What is mortgage protection insurance?
Mortgage protection insurance (MPI) insures the property owner against the unexpected, such as being made redundant, suffering a medical trauma, or death. This can give peace of mind to a property owner who would have no means of settling the mortgage should the worst happen. MPI is much like life insurance and income protection insurance, only linked to your home loan.
Do I need mortgage protection insurance?
Like all insurance, its intention is to provide financial security and peace of mind. It’s good to know that should you suffer a trauma or temporary shortfall, the mortgage could be taken care of. Just how essential MPI is depends on individual circumstance.
Things taken into consideration include:
- Working conditions
If you have no way of paying your home loan repayments should the worst happen. MPI can provide financial support.
If you already have income protection insurance, doubling up on a similar product might not be necessary.
What about lender mortgage insurance?
Lender mortgage insurance (LMI) is a policy that is paid for by the home buyer, but protects the lender from financial loss should you default on loan payments. When lenders approve a home loan, they are effectively taking a risk on whether the amount borrowed will be repaid. Mortgage lenders insurance is therefore generally secured against the value of your property. In the case of standard home loans, LMI generally comes into play when the amount borrowed exceeds 80% of the value of the home.
The LMI premium is usually a one-off payment. The amount will vary depending on how much money is being borrowed and the size of the deposit, if any.
Do I have to have lender mortgage insurance?
The necessity for LMI depends on your provider, but generally, if your home loan amount equates to 80% of the property value or more, you will be required to pay. Compare home loan lenders to find the best deal.