This is default featured slide 1 title
This is default featured slide 4 title
This is default featured slide 5 title
 

Mortgage Protection

The financial industry is packed with pretty shrewd people so it’ll come as no surprise to learn that there are financial products to help with each of these risks.

If you want to reduce the risk of interest rates rising to unaffordable levels, you should have discussed these matters with your mortgage adviser. He will then have told you about “fixed” and “capped interest rate” mortgages. As the name implies, a fixed rate mortgage fixes the interest rate you pay whilst with a “capped” mortgage, the lender agrees not to increase your interest rate above a pre-agreed level. Both types of mortgage revert to the standard variable rate after the fixed or capped period finishes which is typically after three or five years, depending on your lender.

Fixed rate mortgages are currently very popular accounting for 55% of new advances and there are some very good deals around. The capped rate for capped rate mortgages is usually set at the outset above the equivalent fixed rates available but the rate you pay is lower than the fixed rates. In this context your interest rate risk can be effectively controlled. After the end of the protected period you always have the option to re-mortgage and find another rate protected deal. There are never any guarantees on the rates that will be available but the mortgage market is highly competitive, especially for re-mortgages, and special rate offers abound. It’s really a matter of knowing which lender to approach. When the time comes you’d be well advised to ask a mortgage broker to search out the most suitable options.

Worried about paying your mortgage if you lost your job? Then you need Mortgage Payment Protection Insurance – but be aware that in its basic form, this insurance is really only designed to cover redundancy. If you resign or are fired for gross misconduct your unlikely to be insured. The cost? Online you can expect to pay around £2.45 per £100 of monthly mortgage payment for a policy which starts paying out 30 days after you’ve been made redundant and will pay out for up to 12 months. You’re sure to have been offered similar insurance by your bank or mortgage company but watch out, their premiums are likely to be two or three times higher for identical cover.

Mortgage Payment Protection Policies can also be extended to cover the third area of concern – you lose income through illness or accident. But before you rush into this insurance you need to ask your employer how long they’d continue paying you if you were off work. Remember, you only need to insure for the period after your employer stops paying. You would then receive statutory sickness pay, but the odds are you’ll need that income for general living costs. The cost for this insurance? Well, online it’ll again cost you around £2.45 per £100 of monthly mortgage payment for a policy which starts paying out after 30 days, However, if you combine illness, accident and unemployment cover all into one policy you can currently get combined insurance for around £3.95 per month. The essential point to remember is that these policies will only pay out for 12 months. That leads on to the fourth area of concern.

How would you pay your mortgage if you were unable to work again through a serious accident or critical illness? In this context it is important to appreciate the reality of the risk. The insurance industry estimates that 1 in 5 men and 1 in 6 women suffer a critical illness before their normal retirement age. Just think what a heart attack at 40 would mean to your family finances, especially if you have a mortgage with many years still to run. For many, insurance is a must.