Is Lenders Mortgage Insurance Junk Insurance? Lenders mortgage insurance, also called mortgage protection insurance, is a type of insurance that lenders may require you to buy if you don’t have a big down payment and are borrowing a lot of money to buy a home. The insurance is meant to protect the lender if you stop paying your mortgage and the lender can’t get back the full amount from selling the house.
Is Lenders Mortgage Insurance Junk Insurance
Is Lenders Mortgage Insurance Junk Insurance? Some people may think of lenders’ mortgage insurance as “junk insurance” because it only protects the lender, not the borrower. But it can also be good for borrowers in some situations. For instance, if you can’t afford a significant down payment on a house, buying lenders’ mortgage insurance may help you get a mortgage that you wouldn’t have been able to get otherwise. Also, lenders’ mortgage insurance can lower the risk of default for the lender, which means that the borrower will pay less interest.
Ultimately, whether or not you should pay for lenders’ mortgage insurance depends on your situation and financial goals. Before deciding whether or not to buy lenders’ mortgage insurance, it’s a good idea to carefully weigh the pros and cons and talk to a financial professional about your options.
What Is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is a one-time premium that cannot be refunded or given to another person. It is added to your home loan. It’s based on how much you put down and how much money you borrow. The price of the property you want to buy will be lower the more you put toward it. LMI protects the bank from any loss we might have to pay out if you can’t pay back your loan.
Whether you have to pay LMI or a Low Deposit Premium (LDP) will depend on your home loan. This is true when you restructure, add, or refinance your home loan. This is because there might be a higher risk with each application.
We make you get LMI when your loan is riskier.
Example
If you want to buy a $500,000 house, we usually ask for a deposit of $100,000, which is 20% of the property’s value. Lenders’ Mortgage Insurance can help you if you’ve only saved up $50,000 but make enough money to repay the loan. Then, we’d give you the $450,000 you need to buy your new house.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a type of insurance that a borrower can get when they get a home loan. The basic idea is that if something unexpected happens that makes it hard for you to repay your loan, the policy will make up the difference.
What Does Mortgage Protection Insurance Cover?
Mortgage protection insurance pays the monthly payments if the borrower loses their job, gets sick or hurt, or dies.
The borrower will get different coverage amounts depending on the policy and the event. A typical approach might include the following:
- Up to $1,000,000 to pay back the loan if the borrower dies before the loan is paid off. Any extra money will go to the borrower’s estate, which they can use as they wish.
- If a borrower is sick or hurt and can’t work, they can get up to $7,500 monthly to cover their loan payments (this may only be up to 30 days).
- Up to $7,500 a month to repay loans if a borrower loses their job (this may only be up to 90 days).
How Does Mortgage Protection Insurance Work?
Mortgage protection insurance works like life insurance or income protection because it can cover home loan costs if the policyholder cannot make payments. It is a type of insurance that some people who have home loans can choose to get.
What are the benefits of getting Mortgage Protection Insurance?
As with any other kind of insurance, mortgage protection helps your family financially if something happens to you. Knowing you won’t fall too far behind on your payments if your finances take a hit can give you a lot of peace of mind and protect your family’s finances.
Who Needs Mortgage Protection Insurance?
There are a few types of homebuyers who could benefit from mortgage protection insurance. These include borrowers with a small deposit (LVR 80%) or who want to protect their family’s finances in case something terrible happens to them (like illness or death).
Is there anything terrible about getting Mortgage Protection Insurance?
There is a limit to how long you can get coverage from mortgage protection insurance. For example, a borrower who wants to use their mortgage protection insurance because they got sick out of the blue may only be covered for 30 days.
Before getting mortgage protection insurance, you should also think about whether you already have coverage for your mortgage payments through another policy. This could be part of your retirement fund’s life or income protection insurance, so it might be a good idea to look over these policies before signing up.
How much does Mortgage Protection Insurance Cost?
Different people will pay different amounts for mortgage protection insurance. In general, when figuring out how much you’ll pay, an insurance company will look at the following:
- How many people are on the policy
- The size of the loan
- Your age
- The amount to be paid back
But when it comes to weighing the cost, it’s up to you to decide if you think the price is worth it. Say that your policy costs $3.50 per day. This may seem like little, but it adds up to $1,277.50 per year.
