Why lenders mortgage insurance is not enough

Contact Us


Many first-time homebuyers are charged lenders mortgage insurance, also known as a mortgage indemnity guarantee. Some borrowers mistakenly think that it is then not necessary to take out additional mortgage protection insurance.

The mortgage indemnity guarantee is there to protect the lender. If the borrower cannot pay the mortgage, then the lender knows that they will receive a payment to make up for their loss on the loan.

What many borrowers do not realise is that the mortgage insurer can then go after the borrower for payment. Keeping up mortgage payments is made difficult if someone loses their income because of illness or an accident. Lenders mortgage insurance will not cover mortgage payments if a borrower loses their income, whatever the reason.

Lenders mortgage insurance is normally charged for first-time buyers whose loan is a high percentage of the house value, typically around 90%. This is because these loans carry a higher risk for the lender. It is normally charged when the mortgage application has been completed and can either be paid outright by the borrower or added to the mortgage.

To cover the borrower, mortgage protection insurance can be purchased in case the borrower’s income is temporarily down due to illness or injury.

Income protection insurance is another way to cover mortgage payments. This type of insurance will pay out a fixed percentage of your salary if ill or injured.

As a mortgage is usually the largest debt a person takes out, it makes sense to protect it with mortgage insurance.

Contact Us