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Mortgage protection insurance, often referred to as home loan insurance, is an optional insurance designed to help you, the borrower, repay your home loan if unfortunate circumstances render you unfit to work. These unfortunate circumstances can include illness, injury, involuntary unemployment or death.
Read our complete guide to refinancing your home loan here.
Mortgage protection insurance can be paid either through a lump sum, or through periodic loan repayments for an agreed amount of time.
No, mortgage protection insurance is not the same as Lenders Mortgage Insurance. LMI protects the lender if the borrower defaults on the loan, while mortgage protection insurance protects the borrower by helping repay their home loan if unfortunate circumstances render them unfit to work.
Deciding if you need mortgage protection insurance is a personal choice. You will need to weigh up the security of having this protection versus the monthly financial cost. Mortgage protection insurance can be useful if your employment is unstable and can be suitable for the self-employed and small business owners.
To ensure your security, it’s important to shop around for the right insurance for your personal situation. The below factors can influence your choice of mortgage protection insurance.
Coverage
Waiting period
The size of your family
Your income
Your general health
Benefits can include peace of mind and discounts on joint policies. However, the disadvantages include the one-off payout and the issues that can arise out of a relationship breakdown.
Just like any other insurance, one of the main reasons people pay mortgage protection insurance is for the peace of mind it offers.
In the events that you are unable to work due to injury, sickness, involuntary unemployment or death, you and your family will be protected
Fast application process
Discounts on joint policies
Mortgage protection insurance only pays out if unfortunate circumstances render you unfit to work
It doesn't cover as much as other protection insurances (such as income protection insurance) and this insurance doesn’t offer as many long-term features
It doesn’t cover voluntary unemployment
Mortgage protection insurance coverage is determined by the size of your home loan and its remaining term rather than property type. We suggest speaking with your provider if you’re unsure if your property qualifies or not.
Can you save with an offset account? Our in-house experts share their advice here.
Typically, mortgage protection insurance costs around 0.5% to 1% of your entire loan amount on an annual basis. To get mortgage protection insurance, talk to your specific lender, and make sure to review their policies and features to see whether it will benefit you in the long run.
Yes, there is a difference. Income protection insurance insures your wage, while mortgage protection insurance insures your home loan.
Mortgage protection payments are calculated based on your loan size while income protection will cover a set amount (say 75%) of your income
Income protection is geared towards self-employed people where mortgage protection has a lot of limitations with the self-employed
Mortgage protection will pay a lump sum towards your mortgage specifically in the event of death than income protection (since it is calculated based on the balance of your home loan at the time of payment)
Income protection insurance can cover costs such as rehabilitation or medical bills
Mortgage protection insurance can be harder to come by and covers fewer circumstances
Income protection insurance does not typically include mortgage protection, but they are very similar in nature.
The main difference is that in the event of injury, death or illness, a mortgage protection payment is calculated on the outstanding loan amount at the time of payment, while an income protection payment is a set amount.