What You Need to Know About Mortgage Insurance

When you talk about mortgage insurance, you're actually talking about a blanket term for insurance that relates to a home loan. You need to be careful though and find out what exactly it is you're getting. The reason for this is that one type of mortgage insurance is designed to work in favor of the lender, while the others are for your benefit as a borrower.

In this article, we'll show you the distinction between the insurance that protects you and the one that protects the lenders. Here they are:

  1. Lenders Mortgage Insurance. In most cases, the lender will require you to put at least a 20% deposit on the property that you're planning on buying. On a property that costs $500,000, for example, you'll need to pay a deposit of at least $100,000. Of course, not everyone can meet the required minimum 20% deposit. The economy's bad, jobs are hard to get by, yet people still need to have their own homes. That is where the Lenders Mortgage Insurance (LMI) comes in. The LMI is paid out by borrowers who don't have enough funds to make the 20% deposit. They pay the LMI out usually at beginning of the loan. This helps protect the lender in case the borrower defaults, and may not be refunded.
  2. Personal Insurance. There are also types of insurance that could help protect borrowers when it comes to making their repayments. While not directly designed to pay off home loans, some types of insurance could help with the borrower's finances in their time of need. For example, if a person loses his job, he could still make his repayments with the help of income protection insurance. Or in case the person dies in an accident, the life insurance could help cover for the remaining mortgage via a lump sum payment. The great thing about getting personal insurance is that it also helps protect the future and finances of your household, while ensuring that you meet your financial obligations such as your mortgage repayments.

Here at Rate Detective, we can help you find both the right mortgage for you and personal insurance that will help you secure your future. Our qualified advisors are ready to assess your needs and provide you with rate comparisons of Australia's top lenders and insurance companies so that you can make the right choice for you and your family. Contact us today for more details!

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Published on April 4-th, 2013 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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