Are your injuries permanent or temporary?
The majority of Australians that take out income protection insurance are either business owners, self employed contractors/consultants or work in high-risk professions.
While temporary or permanent disability or illness is something none of us like to think about, having income protection is something you’ll be glad to have when the proverbial hits the fan.
The problem is that even if the payments are permanent and ongoing, some banks won’t approve a mortgage using income protection payments. However, there are some lenders that can help.
How much can I borrow?
With a select few of our lenders, the following generally applies:
- Borrow up to 95% of the purchase price: The income protection payments must be permanent for at least the next 5 years.
- 100% of income protection payments: Some banks will only accept 50% of income protection payments but some of our lenders will use 100% of this income.
- Lump sum payments acceptable: There are lenders that will accept income protection insurance that has been paid out as a lump sum rather than ongoing payments.
- Refinance available: We can help you release equity from your property so you can amend the home to your needs such as installing ramps, lifts or railings, depending on the nature of your injuries.
- Shorter loan term applies: The home loan must be paid by the time your retire and stop receiving payments. Alternatively, you can provide the lender with an exit strategy that you’ve discussed and signed off with your financial planner in order to qualify for a longer loan term.
- Permanent disability: The lenders will be more likely to accept this type of income.
- Temporary disability: Considered on a case by case basis depending on the nature of the injury or illness.
Do you qualify for a mortgage using income protection payments?
Call us on 1300 889 743 or complete our free assessment form to speak with one of our specialist mortgage brokers about your situation.
Are the payments ongoing?
One of the first things the bank will want to know is whether the injury or illness you sustained either at work or off the job is temporary or permanent.
Being on a permanent disability means that the income protection payments are ongoing for the foreseeable future or until retirement.
Because of this, the bank is more likely to accept this type of income so you can qualify for a mortgage.
What are the conditions around the payments being stopped?
As long as a medical professional has certified that you are in fact injured or suffering an illness that has prevented you from working your normal job, you should continue to receive income protection payments until the time that you’ve specified in your policy.
Some insurers require you to provide medical evidence that you are still incapable of returning to work.
If it’s deemed to be total and permanent disability, you will be covered all the way up until retirement (65-70 years of age).
Generally speaking, the only time payments will stop is if you retire, you cancel the payments yourself or you’re deemed fit to return to your job.
What will your situation be if and when payments stop?
This comes down to having a solid exit strategy that you’ve discussed with your financial planner.
It could be that you’re going to be returning to work on the same income.
Alternatively, you can show that your personal savings, in conjunction with downsizing your home and releasing equity, will be enough to support you and your family after you stop receiving payments.
These are examples only.
You should speak to your financial planner about an exit strategy in order to qualify for a mortgage using income protection payments.
Will the lender accept unemployment or sickness benefits?
Unfortunately, the lender will only accept income protection, total and permanent disability (TPD), and workers’ compensation.
Disability benefits are very similar to TPD except it’s more for temporary incapacity.
Generally, speaking, each time you make a claim for disability benefits, you can be paid for up to 1 or 2 years as long as you continue to be disabled and unable to work during that time. This is the reason why lenders will only accept this on a case by case basis.
Workers compensation, which is paid out by your employer, can actually be paid out to you for a maximum of 5 years (depending on your state). This presents much less risk to the bank.
What if my policy covers me for less than 5 years?
Some lenders may still accept part of this income as long as you have a solid exit strategy or will eventually be returning to the same job on the same salary.
How much does income protection cover me for?
Generally speaking, income protection insurance covers around 75% of the income you’ve lost. However, there are few things to keep in mind.
Depending on your policy, there can be a 30-90 day waiting period before income starts rolling in.
On top of that, you generally receive payments monthly so you have to add another 30 days. All up, you’re potentially looking at 4 months before you even receive your first payment.
In addition to this, the 75% payout may either be inclusive of your usual superannuation contributions or it will be 75% of your income plus 100% of your usual super contributions.
If you’re self employed and paying into your self-managed super fund (SMSF) then you’ll have to discuss how best to manage your finances going forward by speaking with your financial adviser.
What is a non-cancellable insurance policy?
A non-cancellable insurance policy means that no matter how many claims you have or how your health changes, the insurance company cannot cancel your policy or refuse your renewal as long as you keep paying the premiums.
The insurance company is also unable to increase your premium based on any claims or other changes that occur after your policy has been put in place.
This may a good option if you’re able to manage the injury or illness yourself for the time being rather claim income protection insurance.
Bear in mind that non-cancellable income protection insurance is at least 25% more expensive than a cancellable policy.
You should speak to your financial adviser about which insurance policy is right for you.
Australians and income protection insurance
It’s a common comparison that over 80% of Australians insure their car while less than 35% have income protection insurance.
People with musculoskeletal issues make up around a third of all TPD claims in Australia.
Interestingly though, it’s mental health and stress matters that account for more than 20% of all TPD claims for people aged 30-39.
Apply for a mortgage using income protection payments
We’re experts in unusual income types like income protection insurance!
Call us on 1300 889 743 and tell us about your situation. Otherwise, you can simply fill in our free assessment form and one of our mortgage brokers will get back to you.