Business

Queenslanders caught in big mortgage insurance rip-off

I RECKON the biggest rip-off in Australia is mortgage insurance. It's even bigger than the 30% air I get in my cereal packet.

This week I consulted Google after comments I made in a recent article about the property value meltdown happening in Gladstone caused a flutter here and there.

Estimates are that if you were to borrow 90% of a purchase price of $500,000 on your dream home, then the mortgage insurance you'd have to add to your commitment would be an estimated $8820.

If you fell into the trap of borrowing 95%, you'd pay an estimated $15,723.

Why is it a rip-off? There are two reasons:

(1) It is seldom explained to borrowers in the heat of their excitement in having an offer accepted by the vendor that they are paying to insure the lender should they be forced by circumstances to default, not insuring themselves; and

(2) the premium is not transferable, meaning statistically the cover you've forked out for will last just seven years or so.

Just what exactly is the borrower getting for their money? The answer is sweet Fanny Adams!

If the mortgagee forecloses on your loan, then the mortgage insurer forks over the difference between what it got at auction (usually much less than you'd expect because the thing is advertised as a "mortgagee in possession" sale), and what the website blithely says is "the outstanding loan balance and other costs incurred by your lender in relation to enforcing the mortgage" (read exorbitant legal and recovery agent fees).

So life's taken a turn for the worse for you and you've decided to walk away from your home.

At least the insurance you paid through the nose for will satisfy the lender and you'll be able to get on with life and start again. No!

Now you'll hear from the mortgage insurer and they'll want you to cover them for their costs in satisfying the lender's claim. Feel violated?

You will because you'll wear that debt for as long as it takes to repay it and clean up your credit rating.

Forget that new start, past troubles are still biting you on the bum. Your premium covered the lender, not you.

My story is a warning not to simply walk - something far too many do because they think they're covered by mortgage insurance.

Use everything at your disposal to try to stick it out including contacting the Financial Ombudsman Service.

According to the Australian Prudential Regulation Authority in boom state Queensland, insurers had by far the largest loss ratio in fiscal 2013 - 93%, more than twice that of the next worst, Tassie.

The loss ratio is a measure of payouts verses premiums collected. Here borrowers are walking in droves, obviously not knowing the longer term consequences.

Topics:  bob lamont, gladstone business, home loan



One Gladstone local urging for tougher smoking ban

Rhiannon Wright and Sheridan Treadwell disagree with the hurdles imposed on them as smokers.

SINGLE resident makes it their mission to ban smoking on beaches.

600 Gladstone, Rockhampton locals find jobs in a month

Construction of RTA Yarwun expansion. Precipitation tank assembly.  Photo Contributed . SINGLE USE ONLY FOR EDITORIAL FEATURE

2800 more people find jobs on this time last year.

Flashing light, boom, tremor: What we know so far

In this 30 second exposure, a meteor streaks across the sky during the annual Perseid meteor shower as a photographer wipes moisture from the camera lenses Friday, August 12, 2016 in Spruce Knob, West Virginia.

What's been ruled out as the cause of flashing light, boom.

Local Partners

Katy Perry gets naked to encourage people to vote

Katy Perry in Funny Or Die sketch

Katy Perry has stripped naked for a comedy video

Jogging Tom Hanks crashes wedding in Central Park

Tom Hanks stopped for a selfie with this bride and groom

MOVIE REVIEW: Storks delivers family fun

A scene from the movie Storks.

ANIMATION can be hit or miss but when it hits, it hits hard.

Nick 'the snake' to call the shots on Survivor jury

Australian Survivor contestant Nick Iadanza.

LATEST evictee is out of the game but will still have a say.

Naomi Watts and Liev Schreiber split

Naomi Watts and Liev Schreiber

Naomi Watts and Liev Schreiber have split after 11 years together.

Why Chris Hemsworth was spotted wearing nail polish

RED CARPET: Do you think Chris Hemsworth is the typical unpolished but well-natured Aussie bloke?

He's now officially the best bloke in Australia

$40million hotel, shops development project for Mackay

Mt Pleasant hotel and retirement accommodation, proposed at 194-202 Malcomson St.

$40m development to take Mackay to 'the next level'

'Flex muscles': Gladstone suburb drops $120K

BUYERS are scooping unprecedented deals by “flexing their muscles at the table”

Few bright lights for property after mining downturn

The Gladstone Regional Council wants associated LNG companies like Bechtel to be apart of the EIS housing accommodation strategy from the outset of the projects and not mid-way through.

Tannum Sands continues to write its own property success story

Property 200m from ocean selling for just over $100K

BEACHCOMBER PARK: Work has started on a new $19.2 million development at Toogoom.

The estate's developer is offering huge discounts for early buyers.

UPDATE: Former rodeo champ's sale rained out, now back on

Larkhill local Ken Consiglio is having an auction of most of the things on his property.

'People kept showing up and we had to turn them away'

Market opens as Gladstone sellers drop prices to force sale

VENDORS are dropping the price on houses to force a sale.