Subscribe to be notified for updates: RSS Feed

Mortgage Protection Insurance vs Income Protection Cover

Injury, Illness and death are not often at the forefront of our minds. Unfortunately, these are also the issues that can have the greatest impact on our lives. When people are considering the importance of income protection, some people believe that they have already taken out an income protection policy with their mortgage. However, upon further discussion we discover they often have mortgage protection insurance, not income protection.

With products as complex as income protection and mortgage insurance, it is inevitable that clients can have a misunderstanding as to what cover they have, what they may or may not be covered for and more importantly, who the benefit is designed to protect.

How does Mortgage Protection Insurance differ from Income Protection?
Mortgage Protection Insurance is designed to protect the portion of the client’s income that is used to pay for their mortgage. This contrasts with income protection where one can generally insure up to 75% of their income. Since the income is what services your mortgage repayments (as well as other living expenses), income protection can provide you with greater financial security should the worst occur. Many other differences exist aside from this, they are discussed below.

FeatureMortgage ProtectionIncome Protection Insurance
What does it insure?It protects the portion of the client’s income that is used for their mortgage repaymentsUp to 75% of the client’s income. This allows the client to cover more than just their mortgage repayments if they are unable to work due to injury or illness.
How long with the benefit be paid for?Mortgage protection insurance policies typically have a benefit period of 2-3 years.Income protection insurance offers a range of benefit periods that are available at the time of application. These range from a 2-year benefit period right up to an age 70 benefit period.
Are the premiums tax deductible?No. Generally mortgage protection premiums are not tax deductible.Yes. Premiums for income protection insurance are generally tax deductible.
Is there a qualifying period that needs to have passed before a claim can be made?Yes. Qualifying periods range from 14 – 90 days amongst most lenders products. This means that the client won’t be able to claim on the policy until it’s been in force for that amount of time.No. Income protection covers are not subject to a qualifying period that must pass before the waiting period can begin.
Are pre-existing conditions covered?No. Mortgage protection insurance will exclude all pre-existing conditions.Yes. Provided the condition has been disclosed and no exclusion has been applied.
Is the benefit period reduced if the client is overseas?Yes. Typically, the benefit period is reduced to 6 or 12 months with most lenders products.No. Income Protection offers worldwide cover. The benefit period cannot be reduced if the client is outside of Australia at the time of claim.
Does the product contain ancillary benefits?No. Mortgage protection insurance generally offers no ancillary benefits.Yes. Income protection covers include a number of ancillary benefits.

Your greatest expense will most likely be your mortgage repayments and your greatest need may well be to place a roof over your head. It’s common to reach a point in life where your financial responsibilities increase significantly. However, in the unfortunate event of you needing to claim on your policy, you will most likely find that the range of expenses to be far greater than simply your mortgage repayments. The flurry of additional expenses that are often incurred at such a time, render mortgage protection insurance inadequate. An income protection policy that replaces the large majority of your income would be able to provide for such a time in a far more appropriate manner. An income protection policy also increases in value the longer you hold it, where as a mortgage protection policy would do the opposite.

Example
A client is on $100,000 a year with monthly mortgage repayments of $2,500. They are involved in an accident over the weekend with a broken leg and are subsequently off work for 3 months. Under mortgage protection insurance the maximum payout for this would be $7,500. Under an income protection policy with 1st day accident cover, the client could be entitled to $18,750 for the 3 months off, a further lump sum of $12,500 for the broken leg, any rehabilitation expenses as well as a range of other ancillary benefits should the need arise. If the same income protection policy had a benefit period to age 65 and the client was not able to go back to work in any capacity, then the policy would pay out until age 65, subject to approval by the insurance company or until the client went back to work.

Summary
Mortgage protection insurance provides you with basic cover that focuses on one particular expense and is often designed to protect the lender and not the borrower. It is not a substitute for a quality income protection insurance policy. Income protection insurance is about protecting more than just the mortgage repayments. Covering 75% of your income and allowing you to protect your lifestyle, if you are unable to work as a result of illness or injury.

Daniel Cox AdvDipFP
Risk Adviser
Authorised Representative No. 339519
Spectrum Wealth Advisers AFSL. 334400
M: 0403976859

Christmas is just around the corner and isn’t it a wonderful time of year? It’s a time for family and friends, a little self-indulgence, of recognising how hard you’ve worked all year and rewarding yourself for your efforts. If you’ve been contemplating a property purchase, why not make that dream a reality? We can help you secure the finance you need, so please get in touch!

Interest Rate News

Thankfully, there was no pre-Christmas surprise this month from the Reserve Bank of Australia. The board decided to leave the cash rate on hold at 1.5 per cent. The central bank’s board will next meet in February 2018.

Property Market News

On the whole, national dwelling values were largely steady in November. Again, Melbourne seems to be proving more resilient than Sydney, with dwelling values up 0.52%. In contrast, Sydney’s housing market saw prices fall -0.72% in November. Canberra’s dwelling values rose by 0.86%, while Hobart experienced 0.64% growth. Things are looking up for property owners in Perth, where values rose by 0.21% in November. The city recorded the first rolling quarterly capital gain since late 2014 (up 0.3% in the three months to November). In Brisbane and Adelaide, there was less fluctuation (0.07% and 0.01% growth respectively). Darwin, like Sydney, experienced a fall in property values – the month-on-month change was -0.42%.

In the week ending December 3, there were 3,276 auctions held across the combined capital cities. According to CoreLogic, the preliminary clearance rate was 63.5% – up from the previous week’s clearance rate of 61.6%. Auction volumes remain in line with last year’s figures, but this time last year the clearance rate was much higher, at 72.3%.

Melbourne and Sydney’s clearance rates picked up compared to previous weeks. In Victoria, there were 1,800 scheduled auctions and a clearance rate of 67%. New South Wales held 1344 scheduled actions and cleared 62% of the stock. Meanwhile, the ACT had the highest clearance rate – 76% on 105 scheduled auctions. Tasmania only held 11 auctions and cleared 67% of stock, while South Australia had 148 scheduled auctions and 65% of properties sold. In Western Australia, 61 properties went to auction and 46% went under the hammer. Queensland held 395 auctions and the Northern Territory had 17. Both had clearance rates of 36%.

As the sun sets on 2017, we’d like to take the opportunity to wish you a safe and happy festive season. Remember, now is a great time to purchase a new property for the New Year, or to re-evaluate your mortgage. If you’d like advice about finding a mortgage that suits your financial circumstances and plans, we’d love to help! We’ll do the hard yards for you, so that you can concentrate on the fun stuff this summer, like playing beach cricket and being with the family. Here’s to an exciting 2018 – hopefully one that includes an exciting new property purchase! Welcome to our December Newsletter

If you’ve been dreaming about purchasing your own place, but a niggling voice in the back of your mind has been offering up objections, we’re here to tell that voice to pump the breaks, champ! In this article, we tackle some of the common objections first-home buyers may have to buying right now, and explain why you should talk with us today.

Objection 1: “I don’t have a big enough deposit”

If you’ve been working hard to save a deposit and feel like it’s never going to be big enough, we have some exciting news for you! Size doesn’t always matter, especially not in this scenario. Being approved for a home loan is not necessarily dependant on how much of a deposit you have, but rather your capacity to repay the mortgage. There are all sorts of options available to aspiring homeowners who don’t have a 20% deposit.

Some lenders still offer home loans for up to 95% of the purchase price. The borrowing criteria can be more stringent than other types of loans, but if you have a clear credit history, stable employment, a solid income, minimal debt and are in a good asset position, you may qualify. Most home loan providers will want to see evidence you’ve saved at least 5% of the purchase price, and you may have to pay Lenders’ Mortgage Insurance with this type of loan – but you’ll have your foot on the property ladder! Speak to us to find out whether this kind of loan could work for you.

Another way to get a foot on the property ladder could be to ask your parents or a family member to be your guarantor. This is when they use the equity in their property as security for your loan. The right time to buy your first home is as soon as you can afford to do so!

Objection 2: “I think the market will downturn”

Whilst the property market does go up and down in cycles, “timing the market” is not as important as “time IN the market”. The sooner you buy a property, the sooner it will be possible for it to start to experience capital growth (which is the term we use to describe how much your property goes up in value whilst you own it).

There is always a possibility that your property will go down in value after you purchase it. However, you need to remember it has only gone down in value ‘on paper’ – you won’t actually lose any money unless you sell it. Market fluctuations are common and it is likely it will have recovered in value by the time you want to sell.

Choosing the right home in the right location can help protect against property market fluctuations and improve your chances of long-term capital growth. When you locate a property you’re interested in buying, we can help you check its capital growth potential with a free property market report – so please ask us.

Objection 3: “I can’t afford a home where I would want to live”

Most people don’t get to buy their dream home the first time around – it’s a goal you can work towards once you get on the property ladder. If you can’t afford to buy your dream home in your preferred location, you could look for something in another location, consider a smaller property that’s more affordable, or opt for a fixer-upper that has potential but just needs a little love. Another option that’s becoming increasingly popular is to rent-vest – rent where you want to live and buy an investment property somewhere else. That way, you can grow your nest egg to enable you to eventually buy the home you want.

There’s no time like the present to chat with us about your plans and finance options. Please get in touch and we’ll explain your borrowing capacity, home loan options and help you get pre-approval on your loan so you can start looking for a property to buy sooner. Is now the right time to buy your first home?

Spring has sprung and isn’t it a glorious time of year? It’s traditionally the time for change and new beginnings! If you’ve been considering a property purchase, now could be the time to get out there, enjoy the sunshine and start your property hunt.
Perhaps you’ve been considering refinancing to a fresh new mortgage that’s tailored specifically to your needs? Or perhaps you’re thinking of renovating your existing home? If so, we’d love to help you out. As the property market heats up, we are seeing plenty of competitive lender deals, so be sure to speak to us about your loan options before you start on your spring property plans!

Interest Rate News

This month, the Reserve Bank of Australia decided to keep the official cash rate on hold at 1.5%. Lenders continue to cut rates for owner-occupiers on principal and interest home loans, and at the same time, try to ensure the proportion of their loan books for investment purposes and interest-only loans meet APRA’s lending guidelines. Despite these restrictions, some lenders have cut interest rates for investors on principal and interest loans in recent weeks. Overall, interest rates remain low and there are competitive deals for both home owners and property investors.

Property Market News

Last month, dwelling values increased by 0.11% overall across the combined capital cities. Sydney’s growth was flat during August, while Hobart led the way for growth in dwelling values, at 0.61%. Hobart was also the strongest capital city performer for the past 12 months (13.61% growth). Canberra experienced 0.57% growth in August, while Melbourne remained resilient, with property values increasing 0.54%. Brisbane and the Gold Coast saw an increase of 0.18% for the month, and in Adelaide property values edged 0.03% higher. Perth’s dwelling values slipped -0.83%, while in Darwin they fell -2.17%.

Auction volumes remained high in Victoria and New South Wales, with 1987 combined scheduled auctions in the week ending September 3. Both had relatively strong clearance rates of 73% and 70% respectively. Across the other auction markets, clearance rates were varied. Tasmania had 10 scheduled auctions, with an impressive 100% clearance rate. The ACT had a 68% clearance rate for 69 scheduled auctions, while South Australia’s clearance rate was 62% for 80 scheduled auctions. In Western Australia, 28 properties went to auction, but only 58% sold, while in Queensland there were 292 scheduled auctions, with a clearance rate of 36%.

If you have property plans this spring, talk to us about a competitive home loan, investment loan, or renovation loan that works to your advantage. We’ll compare the market and line you up with a mortgage that ties in with your personal financial circumstances and goals. Please get in touch today – we’d love to help!Welcome to our September Newsletter

mortgage broker rockingham

Today’s mortgage market is extremely competitive. With so many new deals and loan features constantly becoming available, it makes sense financially to regularly give your home loan a health check. That way, you’ll be confident your mortgage is satisfying your needs and living up to expectations.

If you do suspect your home loan is in bad shape, don’t worry, we’re here to help. We’ll perform a home loan check-up for you and find you a healthy alternative if necessary. Here’s why refinancing every 2 to 4 years may be just what the doctor ordered.

Circumstances change

Over time, your financial situation may change and a mortgage that was a healthy choice several years ago, may be ailing today. It might lack the features and flexibility you need, or you may be paying for features you’re not using. Perhaps you’d like to access the equity in your property to renovate or invest, or could benefit from refinancing to consolidate multiple debts into your home loan to save on interest. You may have changed jobs and have more or less disposable income. Refinancing at least every 2 to 4 years gives you the peace of mind of knowing your finances are on track and your home loan marries with your current financial circumstances and goals. Allow us to remedy this situation by prescribing a tailored home loan that works for you in the long-run!

New opportunities

The finance and mortgage industry is constantly evolving, with new deals, packages and home loan features continually becoming available. By shopping around every 2 to 4 years, you may find a more competitive interest rate that cuts your repayments and potentially saves you thousands – money that would otherwise have been lost in an inefficient loan. As your mortgage and finance broker, we’ll take a holistic approach to your home loan needs, and advise you about features such as offset accounts or redraw facilities that could help keep your finances in tip-top shape.

To grow your wealth

It pays to keep a healthy attitude toward your finances. Reviewing your mortgage regularly keeps you focused about where you’re at financially and where you’d like to be. It may open your eyes to new strategies to proactively build your wealth and expand your investment portfolio. Refinancing can also allow you to access the equity in your home to invest, renovate, go on holiday or use as you see fit.

If you suspect it might be time for your current home loan to meet its maker, please get in touch! We’ll give your home loan a thorough check-up – minus the stethoscope – and find you a healthier alternative if necessary. While we are specialists at what we do, there are no hefty consultation fees involved – your home loan health check is a free service. Call us, your helpful “mortgage medics”!


1 2 3 4 5
Copyright 2016