According to a report published by two of Australia's largest mortgage insurance providers, about 70% of borrowers believe that the LMI protects them in the event of default. LMI is insurance designed to protect the lender. Generally, a lender buys the LMI when an otherwise creditworthy borrower hasn't saved a substantial deposit (typically 20% of the value of the residential property). This was intended to protect the lender in the event of default on the part of the borrower, ensuring that the proceeds from the sale of the property were sufficient to cover the total outstanding debt owed to the lender.
When the money received from the sale of the property is not sufficient to repay the outstanding loan due to the lender, the lender will claim this deficit from QBE LMI. The LMI allows borrowers to break the rental cycle and access mortgage loans sooner, even when they don't have the required deposit, normally 20% of the purchase price. Third, the lender usually organizes the LMI to protect you if you don't pay your mortgage or real estate loan. The LMI, on the other hand, is insurance that you pay as collateral to your lender to protect you from such events.
Once an LMI claim has been paid to the lender, the outstanding deficit owed by the borrower normally goes from the lender to QBE LMI. With the experience and support of LMI, more lenders are prepared to participate and compete for the residential mortgage lending business, in particular high-LVR loans. If you already have these expenses covered, then mortgage protection insurance could be worth it for you. As you know, your mortgage is simply a part of your daily expenses, and simply covering your mortgage won't ease the financial pressure of not being able to work.
Homeowners insurance covers the cost of repairing or replacing your home in the event of damage or destruction caused by an accident or other disaster, such as a storm. Many mortgage protection insurance plans come in the form of term life coverage or a combination of term life insurance and TPD coverage. With the possibility of using the LMI to guarantee the risk of a deficit after the sale of the property, lenders are willing to lend more, accept a lower deposit and also to offer lower mortgage interest rates than they could offer borrowers otherwise. Mortgage protection insurance is often confused with mortgage insurance (LMI) from lenders, which is completely different.
If you have health problems that make term life insurance too expensive or impossible to obtain, mortgage life insurance coverage may be a good option for you.