If you don’t know about mortgage protection, you will hate yourself later
Mortgages were seen in the boom years as a surefire way to borrow, generating unavoidable profits due to rising house prices. Now that the recession has hit, many people are struggling to pay their mortgages on their own; This is where mortgage protection comes in.
When mortgages were painless
During the boom years, many people were able to borrow up to six times their own salary, sometimes more, to buy property. When times were good, it was almost feasible to keep up with payments, knowing that the price of your property was constantly rising and would surely leave you with a clear profit, should you need to sell it.
The sting in the mortgage tail
For many, the mortgage they were once glad to receive has now become a millstone around their neck. With negative equity practically sweeping the country, the term ‘mortgage’ has really taken on a sour taste, especially for those who, as a result of an economic slowdown, have lost their jobs and can no longer afford monthly installments. For them, mortgage protection would have been a very good idea in hindsight.
Where everything went wrong
Typically, a mortgage is taken out with the understanding that the borrower can pay the mortgage payments out of income. The mortgage provider calculates the risk it is taking that the borrower will be able to maintain the monthly payments, based on his salary, other income and his expenses. Unfortunately, the overconfidence of mortgage lenders, as well as borrowers, during the years leading up to 2007 led many thousands of borrowers to receive slow sums that they simply could not pay.
What is ‘mortgage protection’?
It’s only more recently, now that house prices are falling, that people have really started talking about “mortgage protection.” Mortgage protection is an insurance policy that can cover the borrower in the event of layoff, illness, or injury.
How does mortgage protection work?
When you take out a mortgage, you will be informed about the monthly payments that you will have to make to pay it off in the specified period of time. There is the option to ‘protect’ your mortgage by paying a slightly higher rate each month, or by purchasing mortgage protection coverage from a different provider. While different mortgage protection products provide different types of coverage, they mostly relate to layoffs, illness, or injury. Paying extra each month for mortgage protection that covers layoff will mean that in the event you lose your job or suffer an illness or injury that prevents you from working, the insurance company will pay your mortgage payments for you. a fixed term, and you will not face repossession of your property by the mortgage lender.
It’s worth it?
In deciding whether mortgage protection is worth purchasing, it’s important to think seriously about the likelihood of something happening that would prevent you from paying your payments (and therefore could lose your property), and weigh this against the downsides of paying extra in addition to your mortgage payments while you are still employed and healthy.
Since losing your home is likely to affect more people than yourself, it is also wise to discuss it with friends and family. The most important thing is to seek advice on your options, consider all possible outcomes, and make an informed, fact-based decision.