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What Is Mortgage Protection And Why Is It Important?

MORTGAGES | 23.09.2022

When deciding to buy a home, there can be a lot to think about, from where you want to live and how much you want to spend to the furnishings and fittings that will make your new house a home. But whether you’re a first-time buyer, buying a second home, or securing a buy-to-let property, you may want to consider getting some financial protection in place.

Failing to keep up with mortgage repayments can result in repossession of your home, so you should do everything you can to protect yourself. Having some form of mortgage payment protection is a great safety net should hard times come around and you are unable to work. And you may also want to consider what happens in the worst case scenario of you dying before the end of your mortgage term. In these circumstances having a life insurance policy would make sure your partner and/or dependants have the mortgage paid off on their behalf.

What type of mortgage financial protection are there?

There are a few different ways you can cover yourself for scenarios in which you may struggle to find the money to cover your monthly mortgage repayments. The type of coverage you get will depend on the type of protection policy you take out and there are several types of protection policies that you may want to consider: 

Mortgage payment protection insurance (MPPI) - This type of insurance is a specific form of income protection that provides cover for your mortgage payments in case you are made involuntarily redundant or find yourself unable to work due to an accident or ill health. It is usually taken out for a fixed period that dovetails with the length of your mortgage and pays out on a monthly basis.

Income protection - Income protection will replace part of your monthly income if you are unable to work due to accidents or illness. It can be used to cover any of your monthly expenses, not just mortgage repayments, and is also available to those in rented accommodation. Some policies will cover you should you be made redundant for an extra cost. 

Critical Illness - This policy type will pay out a lump sum amount if you were to develop a severe medical condition. In these policies, the conditions that are covered are specific and vary from policy to policy, so be sure to check what is included before taking out this type of cover. 

Life Insurance 

Each month, you will pay the insurer a monthly premium which will then provide coverage and ensure protection should anything happen to you. In the unfortunate case of death during the term of your policy, your provider will pay out a death benefit that covers a set number of mortgage repayments. The number of repayments covered and the limitations of the policy will be individual to your cover and will be stated within your policy terms.    It is important to note, that Life insurance and MPI differ in a few key ways: 
  • rates and premiums   
  • Rules and regulations of the policies 
  • Policy beneficiaries 
 

Do I need financial protection in place if I have a mortgage?

Whilst no law in place states that life insurance or mortgage payment cover is a requirement when applying for a mortgage, you may want to consider taking it out as a form of protection and think carefully about how you will keep up with mortgage payments. In addition many mortgage providers may make it a condition of supplying the mortgage to you. If you decide that you do want protection insurance, a mortgage advisor or financial advisor can help you. 

How much does mortgage protection cost? 

There are several factors that can affect the cost of mortgage protection insurance. Similar to standard life insurance cover, providers will take into account your age, financial status, current lifestyle and medical history before delivering a quote for your monthly payments, and the size of the payment that will be paid to you. 

How long do I need to pay for mortgage protection insurance?

If you take out a mortgage protection policy, you will continue to make the monthly premium payments for the duration of your mortgage term. If you fail to make the payments, your insurance provider can cancel your benefits, but like any insurance policy you are free to cancel at any time, but you may need to pay admin or cancellation fees. However, keep in mind that any money that you have paid towards the policy will not be returned to you when you cancel. 

Is mortgage protection worth it? 

Whether taking out protection for your mortgage is worthwhile will completely depend on your circumstances and specific needs. If you’re a homeowner with underlying health conditions that could affect your long-term health, if you’re employed in a high-risk job or if you are struggling to be approved for life insurance, mortgage protection insurance is a great option to help provide you and your loved one's peace of mind.  If you’re unsure if you need a mortgage protection policy, or don’t know where to start searching for one, speak to a mortgage broker. Here at TaylorMade, we can provide expert advice based on your circumstances to help you find the right policy for you - whilst guiding you through the mortgage process. Speak to a member of our expert team here.   
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Complaints:

In the event that you wish to complain, you can contact us by email, telephone or letter.

Our address for this is:
Complaints Officer, TaylorMade Finance Ltd, 4 Church Road, Urmston, Manchester, M41 9BU. Our email address is info@taylormade-finance.co.uk and our telephone number is 0161 776 1089. We will then investigate the issues raised and inform you of our findings. Should you be unhappy with the resolution to your complaint you may contact the Financial Ombudsman Service, who can be contacted at the following address: Financial Ombudsman Service, Exchange Tower, London, E14 9SR.

Email: complaint.info@financial-ombudsman.org.uk
Phone: 0800 0234 567
https://www.financial-ombudsman.org.uk/

Your mortgage will be secured against your property.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Our fee for this service is 1.95% of the mortgage balance (minimum £1,295 to a maximum of £2,995 although reduced to maximum £1,995 without debt consolidation). Typically this will be £1,995.