Why you need Mortgage Insurance when buying your first home

Why you need Mortgage Insurance when buying your first home

Many of us don’t consider the importance of mortgage insurance until it’s too late.  As with your rates and home insurance which are both compulsory, you should be factoring in a budget per week to cover personal risk insurance like: Life Insurance, Mortgage Protection/Income Insurance, Trauma Cover or Private Medical Cover.

Why do you need mortgage insurance you ask?   You insure your car, so why not your most important asset: your health and your ability to earn a living for yourself and your dependents? Your whole ability to service a new mortgage was based on your income, without it your lender wouldn’t have approved your mortgage. Imagine if you were unable to work tomorrow due to illness or injury, how are you going to pay your new mortgage? If you’re like the rest of us and need to work for a living then it’s going to be pretty tough. Unfortunately your lender isn't concerned with how you are going to pay the mortgage and all your other expenses if you're unable to work, so it’s going to be up to you. 

Worried? You should be. But dont fret. With the right insurance plan in place you can make sure that if you suffer from a life changing event, it doesn't mean you have to default on your mortgage payments and lose your new property. We also understand it can be very confusing so we’ll attempt to make it as simple as possible for you, and for example, personal risk insurance might work like this:

Life Insurance: If you're purchasing your home in a joint name with your partner and one or both of you are working and that partner was to die, how would the remaining party be able to pay both the mortgage and possibly for a funeral as well? Did you know it costs an average of $20k to die in New Zealand? If you are purchasing the house with your partner or a family member have you thought about what would happen with the mortgage if one of the borrowers were to pass away? If you have children how will they be provided for in the event one or both of you were to die? Will you have to sell the family home if you lose an income earner in the family? Life Insurance would provide a lump sum of money to be paid to the owner of the policy in the event that the life insured was to die. This could be used to pay the mortgage in full or in part to ensure that the mortgage debt remaining was either affordable, or eliminated entirely. This money could also be used to provide for any dependents after you’re gone.

Trauma Cover: This would provide a lump sum of money to be paid to the owner of the policy in the event that the insured is diagnosed with, and meets the medical definition covered for one of over 40 medical conditions.  Think all your nasty, most common ones like: heart attack, cancer & stroke. You don’t have to be dying to claim this cover, in-fact the insurer assumes you will make a full recovery but recognises the huge expense associated with being off work for a period of time due to a major medical diagnosis.  This lump sum could be used to keep up with the current mortgage repayments or to pay a lump sum off the mortgage and have the repayments reduced to something more affordable whilst you are off work ill.  This could also mean your significant other could afford to stay at home with you, rather than having to still go to work and worry about paying the mortgage.

Mortgage Repayment Insurance or Income Protection Insurance: Perhaps the biggest danger to your ability to meet the mortgage repayments is going to be whether you are unable to work due to illness or injury. Imagine tomorrow you wake up and are unable to work due to illness or injury, how would you maintain your mortgage commitments and living expenses and still care for your dependents?  After the wait period this cover would provide you with a monthly benefit, paid every month, up until age 65 if required if you are unable to work because of an illness or an accident.

Private Medical Cover: This covers the cost of medical treatment and will work either separately or together with one or all of the above covers, depending on what your needs are. This insures that you get medical treatment at a time and place that’s convenient to you. 

At Stephanie Murray Mortgages we understand that you have a lot of things to pay for and to consider with the new mortgage.  We want to ensure that come what may, you’re able to meet your on-going commitments so that you can keep a roof over your head and don’t have to lose your home because life throws the unexpected at you. This is why with every mortgage application submitted by a mortgage broker, we’ll offer you the opportunity to sit down with our qualified insurance adviser/s to assess your personal risk requirements and to tailor a protection plan for you and your loved ones. Don't wait until it's too late, to find out how we can help you.

This information is general information only and must not be relied upon as legal advice.  A disclosure statement is available here.