Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
Your home loan will typically be your largest debt, while your home is your largest asset. One way to ensure that you can keep paying your loan off and retain ownership of your home is through Mortgage Protection Insurance (MPI).
But is mortgage protection insurance really worth it, or is it an irrelevant insurance add-on? Find out here, as well as how much it costs and what it covers.
Mortgage protection insurance is a type of life insurance where the borrower is protected in the case they can no longer repay the home loan because of certain events such as:
Mortgage protection insurance will help you cover your home loan repayments if these unplanned circumstances arise. By covering the mortgage if you die, it ensures your beneficiaries will be able to retain the home.
Part-time or casual employees and the self-employed, all working less than 20 hours a week, will typically not be able to get cover.
Some people may confuse mortgage protection insurance and Lender’s Mortgage Insurance (LMI). The difference between the two is that mortgage protection insurance protects you in the event you default on the loan.
On the other hand, your lender is protected by lender’s mortgage insurance in case you default on the loan. Unlike insurance policies which are usually optional, LMI is often mandatory and applies when a borrower can’t pay a deposit of at least 20% of the property’s price.
With mortgage protection insurance, you will typically receive one of three payouts (depending on the reason):
One important point to note is most policies exclude any pre-existing medical conditions. For example, if a medical professional has cited you as having an illness or injury in the 12 months prior to buying the insurance, it’s unlikely you will be covered.
The cost of mortgage protection insurance will depend on a number of different factors including:
You can pay for mortgage protection insurance either as a lump sum payment or you may be able to make your payment monthly, depending on your insurer.
As a general rule of thumb, mortgage protection insurance policies cost around 0.5% to 1% of the loan amount on an annual basis. When shopping around for an insurer, make sure to get a range of quotes to ensure you’re getting the best deal.
Mortgage protection insurance only covers you for your mortgage repayments should you suffer an event that affects your income. This means, you will still have other bills to pay such as: living expenses (energy bills, phone bills), car registration, school tuition fees, and food expenses.
Here are the advantages and disadvantages to see if you need mortgage protection insurance.
If you feel mortgage protection insurance may not be right for you, here are some other options to consider, all of which can help with mortgage repayments.
Otherwise known as death cover, life insurance pays out a lump sum to whoever is nominated in your policy when you die. While the party can use the money for whatever they wish, it could go towards mortgage repayments and any other debts.
Income protection covers you in the event you lose your income to sickness or injury. It is designed to cover your income by up to 85%, which you can use as you wish (for all your expenses, not just the mortgage). To get covered, you must pay a monthly fee.
TPD provides you with a lump sum for permanent loss of work due to serious illness or injury. Often included with life insurance, you can use the payout to cover your mortgage repayments and other necessary bills.
Whether you’re buying your first, next, or investment property, loans.com.au is here to help.
Contact one of our friendly lending specialists to get the keys to your dream home for less or save thousands on your existing loan.
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.