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Mortgage Protection

Buying a home is one of the biggest financial commitments you will ever make. Placing the right cover to protect your home is essential, and it is a requirement by your lender to have protection in place on your home. Mortgage Protection is a form of life cover, tailored to pay off the outstanding balance of your mortgage in the event of your death during the term of your mortgage loan. Is your mortgage protection cost effective and meeting your needs?

Repayment Mortgages

This is a mortgage where the amount of loan decreases over the term of the policy through the payments of capital and interest on the mortgage loan. Mortgage Protection is a low cost life cover benefit which decreases each year in line with the decreasing value of your mortgage, with the premiums remaining the same throughout the term of the policy. It is suited to those whose principal concern is to ensure the mortgage is paid off in the event of their death. Although, Mortgage Protection is cheaper than Level Term Life Cover, individuals with other commitments, and those with a family normally opt for a more substantial form of life cover, where affordability allows it, to cover the financial needs of their family.

Interest only Mortgages

With an interest only mortgage, the amount owed to the lender never reduces as only the interest owed is repaid every month, with the capital paid at the end through an endowment policy or secured on another property (ie; holiday or rental home). If you have an ‘Interest only’ mortgage, a Level Term Life Cover policy should be considered rather than a mortgage protection policy, as this pays a fixed rather than a decreased benefit, ensuring there is always enough cover to clear the mortgage in full, in the event of the death of the policy holder.

Mortgage Top-ups

To ensure continued financial security in the event you consolidate your loan through a mortgage top up or indeed extend your mortgage term for financial affordability, you will be required to restructure your mortgage protection policy. Your new premium is likely to be higher as you extend your cover over a longer term and because you may be older than when you took out your original cover, all of these factors need to be protected.

Serious Illness Protection can be accelerated to your Mortgage Protection, that in the event of a specified serious illness some or all of the outstanding amount of your mortgage (whichever amount is chosen) can be paid off to release the burden of mortgage repayments while you are recovering.

It is important to note that mortgage protection does not cover your actual mortgage repayments if you cannot work due to sickness or redundancy. In this instance, you would need ‘mortgage repayment benefit’ available from your lender which can be built into your mortgage repayments.

How much will it cost?

As with Term Life Assurance, the cost is on an individual basis and is based on the following:

Amount of cover taken out (normally the mortgage sum effected)
Term (fixed for same term as the mortgage)
Smoker or Non Smoker
State of health

Extra Optional Benefits will also add to the cost:

If Serious Illness Protection is chosen
Rider Benefits in the form of Hospital Cash benefit, Accident Cash benefit, Surgical Cash benefit

It is a statutory requirement by your lender to have Mortgage Protection or some form of Life Cover in place structured to cover the amount of your mortgage loan. Under the Consumer Credit Act 1995, while your lender can insist you get mortgage protection insurance, they cannot insist that that you purchase it from them. You are free to shop around with financial product providers to obtain competitive premium costs.

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