Australians looking to purchase their first home, refinance an existing loan, or secure a car or personal loan have likely heard about mortgage insurance. But what is it? And do you really need it? This blog post aims to answer these questions and provide all the information you need to know about mortgage insurance in Australia. With topics from eligibility criteria for different types of loans down to exactly how much extra coverage might cost you, this comprehensive guide will help you make informed decisions about your future finances.
What Is Mortgage Insurance?
Mortgage insurance is sometimes referred to as lender‘s mortgage insurance (LMI). It’s a type of cover that protects the lender in case you can’t keep up with your loan repayments. If you default on your loan, the insurer pays out the remaining balance of your mortgage to the lender, so they don’t end up losing money. This means that lenders are more likely to accept loans even if there are higher risks involved – such as when a borrower has a smaller deposit or low income.
Risks
If you need or want to take out a loan and are concerned about the risk it poses, taking out LMI could be an attractive option. In some cases, lenders may require you to take out mortgage insurance before they will approve your loan.
Mortgage Insurance Cont.
In Australia, there are two main types of mortgage insurance: lenders’ mortgage insurance (LMI) and adverse credit protection insurance (ACP). LMI pays out the remaining balance of a loan if the borrower defaults on their repayments, while ACP only applies when a borrower’s credit rating has deteriorated and they are unable to make repayments due to an unexpected event.
Important Note
It’s important to note that taking out mortgage insurance does not always guarantee approval for a loan – it simply provides extra security for the lender in case something goes wrong. To be eligible for either type of cover, you must meet certain criteria including having a good financial history and being able to make the necessary loan repayments.
The cost of mortgage insurance varies depending on the type and amount of cover, as well as any additional features you might opt for. Generally speaking, LMI premiums can range from 0.2-2% of the total loan amount, while ACP typically costs around 0.1-0.4%. It’s important to remember that these are just estimates – contact your lender or insurer for an accurate quote.
In conclusion, taking out mortgage insurance is a wise decision if you want to protect yourself and your finances in case something unexpected happens and you can’t keep up with your repayments. The exact cost of such coverage will depend on the specifics of your loan and the insurer, but it’s definitely worth considering if you want to give yourself extra peace of mind.
We hope this guide has helped you understand all there is to know about mortgage insurance in Australia. Good luck making the right decisions for your financial future!
