In the midst of lender approvals, rising interest rates, loan-to-value ratios (LVRs)  and a dozen other buying and selling issues, it's easy to forget such points as mortgage protection insurance.

But it's worthwhile taking a few minutes out of your day to explore this point more.

What is mortgage protection insurance?

Sometimes referred to as home loan insurance or mortgage repayment insurance, mortgage protection insurance protects you (and your family) against the risk of being unable to repay your mortgage.

Perhaps you've lost your job, become sick, or been badly injured and are now permanently unable to work.

Or, your partner, or the person you share the mortgage with, has hit such hurdles or they or yourself have died.

In this way, it is a form of consumer credit insurance and just like life or personal income insurance, it can assist you to repay your mortgage when your life - or at least, your income - goes south.

At the same time, this insurance will only assist you or your family with your mortgage repayments - not your groceries, utility bills, and medical costs.

It's also completely different to Lenders Mortgage Insurance (LMI).

But it's not compulsory.

What crises does this insurance cover?

This can differ widely depending on your provider and circumstances but in general, policies will assist with payouts for:

• Death
• Terminal or serious illness
• Involuntary unemployment

What's excluded from mortgage protection insurance?

• Voluntary redundancy
• Injury or illness from reckless or illegal behaviour
• Injury or illness from a pre-existing medical condition

How does mortgage protection insurance work?

If a crisis has occurred,  you can make a claim to your insurance provider and you will receive a lump sum or ongoing payments to assist you and your family with mortgage repayments.

Insurance payments are generally calculated based on your loan size at the time of these payments, or the lump sum.

You can choose how much your lump sum or payments will be, but a higher sum or payment equals a high premium.

How much does mortgage protection insurance cost?

Costs can vary widely but will usually depend on the following:

• Your everyday health
• Your income
• Your age
• Your home loan and mortgage repayments
• Single or joint policy
• The amount you wish to insure for

Is mortgage protection insurance available to all buyers and properties?

Yes, generally.

You can certainly take out insurance for both residential and commercial properties and it's also available to both owner-occupiers and investors.

Self-employed workers and small business owners with unstable employment can also take out this insurance and it can be particularly useful to such people.

At the same time, these people may find it more worthwhile to take out income protection insurance (more about this below).

Is mortgage protection insurance tied to my home loan?

Sometimes it is and sometimes it isn't.

Some lenders will keep your home loan separate from your insurance.

But if you refinance or change your loan in any way, you may be required to organise extra paperwork to ensure you keep your insurance.

What's the difference between mortgage protection insurance and income protection insurance?

Both protect against death and disability but one protects your mortgage/home loan and the other protects your income.

This is why sole traders and small business owners may prefer income protection insurance to that of mortgage protection insurance.

Other differences include the following:

• Income protection covers a particular amount of your income (up to around 75%) whereas mortgage protection insurance covers your loan size
• Income protection will help you repay your mortgage as well as any other needs such as groceries, utility bills, and medical costs

Risks and benefits

There are plenty of both pros and cons to mortgage protection insurance so let's have a quick look at the main ones.

Risks

• It's limited regarding what you can claim for
• Repayments or lump sum may be capped
• Certain claims or policyholders may be excluded
• As with any consumer credit insurance, this insurance may actually be of poor value overall

Benefits

• You and your family can still repay your mortgage if you lose your job - or worse
• Fast application processes
• Joint policies may equal premium discounts

Is mortgage protection insurance worth it?

No one can answer this question but you!

It may be that income protection insurance may suit you and your circumstances - or vice versa.

We encourage you to consider both possibilities when buying, especially if you're a sole trader or you have a large family to feed.

We’re here to help

Whatever home loan road you wish to take, we’d love to help you travel it!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.