Mortgage Insurance & LMI
Insurance is an important service to ensure we’re protected when things don’t go as planned. While we typically deal with things like auto insurance, travel insurance, or health insurance, mortgage insurance is something most people aren’t familiar with. Not to worry; we’ve got you covered and will give you the lowdown on why mortgage insurance is important.
Mortgage insurance provides financial protection to buyers and lenders so that the loan amount is protected should something happen to you preventing you from paying. It provides lenders with the repayments you’re unable to make and protects their investment as well as your property.
From a wealth creation perspective, mortgage insurance is designed to help ensure you achieve your long-term financial goals without ever being in a position where you are forced to sell off any of your assets.
Whether you’re thinking of buying a home or an investment property, or you’re wondering what the fine print on your loan statement means, understanding mortgage insurance is a great way to better understand the terms of your mortgage. It is nice to know that there is a valid reason for the mortgage insurance line on your financial statements, but its real benefit is in providing you peace of mind when you can’t pay your mortgage.
What Is Mortgage Insurance?
Due to the significant expense of property, mortgages are required to finance their purchase over several years. Banks provide this financing in the form of mortgage loans to property buyers, but the bank is taking on a significant financial risk in doing so. In order to justify the risk the lender takes, there are various strategies to minimise their risk and ensure their investment in you is a safe one.
Mortgage insurance is insurance provided by a third party to a mortgage lender on behalf of the borrower. Mortgage insurance protects the lender should the borrower be unable to pay for one reason or another. It provides payments to the lender or to a designated party when circumstances prevent the named party on the loan contract from making their repayments.
There are different levels of mortgage insurance available depending on the terms of the insurance policy. Some will make payments for a specified length of time or amount, while others will pay out until the mortgage is paid off. The rates will also vary depending on the risk to the insurer and the benefits they provide should insurance be required.
Is Mortgage Insurance Required In New Zealand?
You might be surprised to know that mortgage insurance is not actually required in New Zealand, but you’d be hard pressed to find a mortgage that doesn’t require it in practice. Mortgage insurance protects the buyer and the lender should unforeseen circumstances arise.
There are various levels of mortgage insurance available and certain types may be contractually required to secure a mortgage loan from a bank or other lender. The less equity you have in your home, or conversely the lower your down payment on a home, the more risk that is entailed by both the borrower and the lender. If you want to discuss the various options available to you, it’s best to evaluate your options with a qualified mortgage insurance adviser.
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What Does Mortgage Insurance Cover?
Mortgage insurance comes into play when a borrower is unable to make their mortgage repayments for one reason or another. The exact coverage of mortgage insurance varies depending on the insurance provider, but any mortgage insurance will cover mortgage payments for some length of time.
The best mortgage insurance will cover the full cost of the mortgage or at least make payments until the borrower is able to again. It can be triggered if a person has a condition or disability that makes them unable to earn, has financial difficulties limiting their ability to pay, or if they pass away. If any of these come to pass, the insurance kicks in providing funds to the lender or the designated beneficiary (for them to make payments) for the length of the policy.
How Much Does Mortgage Insurance Cost?
A lot of mortgages are already accompanied by mortgage insurance, so it’s something a lot of property owners have encountered already in securing their mortgage. The rates of mortgage insurance vary depending on the age of the borrower, the mortgage amount covered, the length of the policy, and its associated benefits, but these are usually stipulated in the insurance policy contract.
The expected costs for mortgage insurance range between 0.5% to 1.5% of the total mortgage value, though amounts can be higher or lower depending on your equity in the property and other factors.
Get in touch with MyFuture to discuss your mortgage insurance options today! We offer a FREE no obligation Discovery Session to evaluate your options and make the best financial choices for your future.
What is our 6-Step Financial Advice Process?
The 6-step financial advice process is the international benchmark for financial planning. This holistic approach is proven to increase the likelihood of you achieving your financial goals.
Discovery Session
This is our opportunity to get to know you better, understand your financial goals (short, medium and long-term), and what resources you have to achieve those goals.
Research & Recommendations
During these steps, we do the research, run the numbers, document and present our recommendations to you. This can be a comprehensive financial plan focused on long-term wealth creation and/or a statement of advice focused on your more immediate financial needs. We will need to verify the information you provided during the Discovery Session by requesting supporting documents such as loan and savings account balances, payslips, etc. This ensures we are using highly accurate information when developing our recommendations.
Implementation
This step is all about implementing the recommendations. We don’t just provide the recommendation; we take responsibility for helping you implement it. This could involve helping you to complete application forms, working with a broker to restructure your lending, or finding you suitable investments. We understand you’re busy, so our goal is to make your financial world as easy as possible by doing as much as we can in-house for you. However, ultimately, we never have access to your money and cannot sign anything on your behalf, so you need to be an active, willing, and ideally enthusiastic participant in this process.
Ongoing Service & Reviews
This is where the real fun begins—managing and tracking your long-term financial success. We have periodic reviews to ensure your strategy is still appropriate if your goals or circumstances have changed. We adjust when necessary and provide annual snapshots so you can see your progress over time. Most importantly, you have your very own trusted Personal Financial Adviser available anytime to help with the little or big stuff. Worried about making next month’s mortgage repayments? Call us. Your parents gave you an early inheritance? Call us. Broke up with your partner and split all your assets? Call us! We’re here for you every step of the way to ensure that whatever life throws at you, you stay on track with your long-term financial goals.
Frequently Asked Questions