Mortgage Advice: What Is Mortgage Protection?
Mortgage protection is an optional policy which ensures your mortgage payments are fulfilled if you cannot pay for certain reasons
. Depending on your personal financial circumstances, gaining mortgage protection may be a good idea for safeguarding your home should difficult times occur unexpectedly.
Why is mortgage protection necessary?
In 2009, as the UK economy struggled to recover from the recession, 46,000 homes were repossessed, according to the Council of Mortgage Lenders. Falling into arrears with your mortgage can mean that you are in real danger of losing your home, and protection can provide you with a safety net to prevent that happening.
If you do fail to pay your mortgage for a number of months, it is quite possible that your mortgage provider will start repossession proceedings. This is many people's worst nightmare and worth the extra monthly cost of mortgage protection payments. For others, though, there is less risk of financial difficulties and repossession, and for them the extra cost may not add up.
How does mortgage protection work?
If you choose to take on a protection policy, it will mean paying out a monthly sum on top of your usual mortgage payments. By doing so you will ensure that your mortgage is covered if you cannot pay because you have lost your job due to illness, injury or redundancy.
However, this cover will usually only last for 12 months, or 24 months in some cases, so it cannot be looked at as a long-term option, just as a stop-gap until you get as new job or recover from ill-health. Also, the protection does not cover you if the breadwinner in the family should pass away - it should not be confused with life insurance.
Who needs mortgage protection?
Whether or not to take on mortgage protection is entirely up to you, and you will need to weigh up the pros and cons, remembering, of course, that losing your home can be the most stressful and upsetting thing to happen when times get tough.
If you have a set monthly budget with little in the way of savings to tide you over should money troubles become an issue, protection may be a good option for you. If, however, you feel confident in your job and have a strong set of assets which will allow you to pay your mortgage in most circumstances, you could be better off without it.
Don't take the first offer
On applying for a mortgage, many people feel tempted to go with the first protection policy they are offered - that of their provider. This can seem like the straightforward option and your mortgage provider will be sure to enlighten you on their policy's particular benefits. However, it is not likely to be the most cost effective.
There are a huge range of offers out there and, bearing in mind you may be making payments on your policy for decades to come, it is highly sensible to take a good look at all the offers on the market before deciding on one in particular.
by: David P Walker
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