Cover your mortgage for less
THE SUNDAY TIMES - 11TH APRIL 2004
Homeowners could save thousands of pounds over the term of their mortgages if they did not buy insurance from a high-street lender.
The top 10 mortgage lenders charge an average of £5.80 to cover every £100 of your monthly repayments if you are ill or lose your job.
The typical premium compares with an average of £4.06 for the five cheapest mortgage payment protection policies, according to Defaqto, a research firm.
The difference costs homeowners £237m a year, or £5.9 billion over a 25-year mortgage. The figures assume that 2m people have the cover on a repayment mortgage of £100,000 at a rate of 4.75%.
Abbey is one of the most expensive high-street lenders. It charges £6.04 to cover a £100 of monthly repayments. So if you have a £100,000 mortgage with repayments of £570 at a rate of 4.75%, you would pay £34 a month, or £413 a year, for cover.
Pinnacle Insurance charges just £3.40 per £100. You would pay £19 a month, saving £180 a year, or £4,500 over the term of your loan.
There are other ways to save money. Brian Brown of Defaqto said “If you do not want unemployment protection, perhaps because you think you will find work again before the policy pays out, you can ask for accident and sickness cover only. But most companies push their fully comprehensive policies unless you specifically ask for something different.”
Unemployment cover from Burgesses, a broker, costs only £2.45 per £100 of monthly mortgage repayments, compared with £3.95 for the comprehensive policy.
If you want just accident and sickness cover, first check if you would get any help from your employer. Many companies will pay your salary for three or six months if you are off work due to ill health.
If you still want cover, consider income-protection insurance. This covers your entire income, not just your loan repayments, for up to two years if you are off work due to ill-health. Simon Burgess of Burgesses said: “ Income-protection insurance can work out much cheaper than payment protection.”
Always check if you have a critical illness or income protection insurance before you opt for payment protection, or you could double up on cover.
Experts warn that borrowers are often ripped off on protection insurance for personal loans. About three out of four loans are sold with cover attached and, as the cost is added to your loan, it can more than double the total interest paid. For example, on a three year £5,000 loan from Intelligent Finance charging 7.9% you would pay interest of £685.48 for the loan and an extra £1,015.56 for the insurance. The monthly premium would be £157.93 without insurance and £186.14 with cover.
Insurance bought form the lender is usually more expensive than a stand-alone policy. You would pay £1,371.60 in premiums to cover a £5,00 loan over three years from the Bank of Scotland - £38.10 a month. But it could cost as little as £183.60, or £5.10 a month, if bought separately from Payprotect.
