Most borrowers take out a mortgage over a long term, which means that paying it off can take many years. But anything can happen over such a long period, preventing you from making your payments and putting your home at risk.
This is when mortgage insurance offers vital protection should the unexpected happen and you suddenly find yourself unable to repay your mortgage. Here, we’ll explain what mortgage insurance is, the different types and whether you need it.
What is mortgage insurance?
Before going into detail, the first question you’re likely to ask is whether it’s necessary to have mortgage insurance. The simple answer is that mortgage insurance isn’t compulsory. However, it offers essential protection in instances that may prevent you from paying off your mortgage.
For example, if you’re made redundant or suffer from a severe illness or injury that stops you from working, you can receive monthly payments to cover your mortgage. If the worst happens and you pass away, your loved ones can repay the mortgage with a one-off payment made by your insurance provider.
The next question is what kind of mortgage insurance do you need? When you first start looking at mortgage insurance, you might be confused by the numerous terms you come across. For example, mortgage protection, life insurance, mortgage payment protection, critical illness cover, mortgage protection insurance, mortgage life insurance, income protection and mortgage payment protection insurance. There are two main types of mortgage insurance, which we’ll explain below.
The types of mortgage insurance
The two main types of mortgage insurance are mortgage protection insurance and mortgage life insurance.
Mortgage protection insurance
Mortgage protection insurance is also known as mortgage payment protection insurance (MPPI). This type of insurance allows you to continue making your repayments if you’re unable to work due to a serious illness, accident or involuntary redundancy.
With mortgage protection insurance in place, you can have peace of mind that your mortgage payments are covered. In the meantime, this gives you some breathing space to recover from your injury or illness or look for a new job.
Mortgage life insurance
Mortgage life insurance is also known as decreasing life insurance. With this type of life insurance, the amount of cover decreases over time as the outstanding balance of your mortgage reduces.
This cover gives you peace of mind that if you die before your mortgage is repaid, the remaining mortgage debt will be paid off. Your loved ones won’t need to worry about having to make monthly mortgage payments and they can stay in the family home.
Do you need mortgage insurance?
Whilst having mortgage insurance isn’t mandatory, a mortgage is likely to be the biggest expense you have. As such, this insurance cover protects your home against the risk of repossession should something unexpected happen that prevents you from paying your mortgage.
Whether or not you need mortgage insurance and which type really depends on your circumstances. For example, if you’re buying a property on your own without any dependents to worry about, mortgage protection insurance is worth considering in case you’re unable to work as a result of redundancy or a serious illness or injury.
If you’re buying a home to live in with your family or you’re buying a property with someone else, however, it’s best to have financial protection in place for both you and them. Mortgage protection insurance and mortgage life insurance are both, therefore, worth considering.
Put financial protection in place with mortgage insurance
Our mortgage and protection brokers are here to discuss the types of mortgage insurance with you in more detail as well as the alternatives available.
You may, for example, want your loved ones to receive more financial help on top of the mortgage payments, such as funds to cover other living expenses. You may want to receive a certain proportion of your salary if you’re unable to work and have the flexibility to claim multiple times within the policy term. Or you may only want financial protection if you’re diagnosed with a serious illness.
Whatever your financial protection needs, just give us a call on 01322 907 000. We’ll help you to decide on the best type of cover for your circumstances.