Explaining mortgage payment protection insurance cover
- 20TH JUNE 2007
Interest rate rises do not always seem to succeed in slowing down the housing market, but they certainly increase mortgage payments.
Those desperate to get a foothold on the housing ladder are therefore often ploughing every spare penny into mortgage payments. Indeed, many are actually over-committing themselves and finding that the proportion of their salary not spent on mortgage payments is insufficient to meet other basic costs of living.
Bearing in mind that such problems are occurring to many people who still enjoy the prop of a regular salary, just imagine what it must be like for those who lose their jobs!
It is therefore important that prospective mortgage borrowers consider taking out mortgage payment protection insurance cover to ensure that their mortgage payments are taken care of in the event of experiencing such misfortune.
Mortgage payment protection insurance cover will typically pay out for a maximum of 12 months if the policyholder is unable to work as a result of illness, injury or involuntary unemployment. In addition to interest and capital repayments, the mortgage payment protection insurance policy can also be used to protect other mortgage-related expenses like premiums for endowment and household insurance policies.
In view of the limited assistance available from the State, having a mortgage payment protection insurance policy can make the difference between being able to continue to live in your home and having it repossessed.
Come the crunch, most homeowners will not receive any State support because they have either a full-time working partner or savings exceeding £8,000. Those who actually qualify for assistance will not receive it for capital repayments, only for interest repayments on the first £100,000 of their mortgage – and even this will not be payable for the first nine months for mortgages taken out since October 1995.
But it is essential to realise that there is no compulsion to buy mortgage payment protection insurance cover from your mortgage lender. Indeed, doing so will often secure you an extremely uncompetitive deal. Make sure, therefore, that you consider what independent specialist mortgage payment protection insurance providers have to offer.
The specialist mortgage payment protection insurance specialist often undercut the High Street lenders by margins significant enough to save you thousands of pounds over the mortgage term. They also tend to offer a superior quality of cover.
For example, mortgage payment protection insurance policies offered by some specialist providers pay out after you have been off work for 30 days and back-date payments until day one, whereas mortgage payment protection insurance policies offered by mortgage lenders often do not pay out until after an initial 60 day excess period.
But even the best value mortgage payment protection insurance has significant exclusions to be aware of. Of particular importance is the fact that mortgage payment protection insurance policies do not cover medical conditions that existed at the time of taking out the mortgage payment protection insurance policy (so called ‘pre-existing conditions’).
The fact that the self-employed are only covered for involuntary unemployment if they actually cease trading and that even employed people are not covered for voluntary redundancy could also make mortgage payment protection insurance seem poor value to a significant minority.
