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Mortgage Insurance Explained

When you take out a mortgage on a property, it is likely you will be offered mortgage insurance. Mortgage insurance covers you for missed payments over an extended period (over 30 days) in the result of injury, sickness or unemployment. Mortgage insurance also allows for people who fall into risk categories like the elderly and blue collar workers a greater chance of obtaining a mortgage. However, if you do fall into those categories your premiums will invariably be higher.

Who is a potential candidate?

It is not required by law but often is required by the money lender who is offering the home loan. This is especially true if they are offering finance to someone who has had a patchy employment record or is in a high risk group such as a pensioner. Regardless of your status, mortgage insurance is usually required when the loan amount is greater than 80% of the value of the property.

Also known as mortgage payment protection, mortgage insurance is an option for anyone who has a standard style mortgage as it replaces your payments if you are unable to meet your mortgage due to injury or long term illness. More innovative mortgages offer payment breaks for long periods of time and may make it unnecessary.

What typically does it cover?

Mortgage insurance covers mortgage payments for periods of between 12 months and 5 years, though terms between three and five years are increasingly difficult to find. If you are unable to meet your mortgage payments because of sickness, injury or unemployment then your insurance will begin. The only conditions normally placed are that you would have to been 'out-of-action' for a period longer than 30 days, your unemployment voluntary or your illness elective (e.g. cosmetic surgery).

What typically does it not cover?

If you become critically ill and are unable to pay any mortgage payment again, this is not covered as standard. As indicated earlier, mortgage payments are normally covered for up to five years. The critical illness cover inclusion normally means your mortgage will be paid off in full in the event of a major event such as cancer or a stroke. Some of the higher quality insurance providers will allow for this automatically but it is by no means a standard inclusion.

Additional coverage that policy holders might take out in this area

This product covers your loan re payments in an event that you are unable to pay for your home loan because of injury, illness or long-term unemployment. If that has happened to you then your benefit only covers your mortgage payments. How will you make provision for every other cost in your life? If you are concerned about this then income protection may well be an avenue to explore too. This type of insurance actually provides you with a percentage of income in the event of loss of earnings. Some income protection plans even cover mortgage payments in their policies.

It is normally comprehensive and it ought to be considering how much you end up paying per year. There are no additional clauses you will need covered if you have taken a standard policy.

What will it typically cost?

Your premium can start around 1% and then drop over gradually over the term of your loan. The rates for are linked to how much you have borrowed as a percentage. Your premiums on a property you have a home loan at 100% are far greater than a property where you have borrowed 50%.

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