If you found that you could no longer afford the mortgage repayments, the last thing you would want is to find your home repossessed. But neither would you want to avoid defaulting on the repayments by putting the home up for sale. The present state of the housing market makes could make it a very expensive decision to sell, and recent reports suggest that it is becoming even more expensive to sell property. A rather better bet lies in the advance precaution of mortgage insurance.
The average homeowner has seen between 16% and 17% wiped off the market value of their property over the last year or so. With current values so low, it is hardly surprising that many homeowners see selling their home as very much a last resort. To make matters even worse, however, a report in the daily Telegraph newspaper on the 8th of June 2009 revealed that the cost of selling a property will inevitably rise as estate agents across the country begin to increase their charged rates of commission – an increase in fees of just 0.5%, for example, adds a further £1,000 in estate agents’ fees alone onto the cost of selling a £200,000 property.
Unfortunately, however, many homeowners can find themselves in a position where selling the home seems to be their only option. The need to take unpaid time off work because of an accident or illness, for example, could lead to several months without the resources with which to keep up the mortgage repayments. Compulsory redundancy, too, could lead to an indefinite period of unemployment, when once again there is no income from which to make the repayments on the mortgage. Without the funds to keep up the repayments, the impossible choice might seem to be that between repossession or sale of the home.
But there is a decidedly more attractive option for those homeowners who had the foresight to arrange reasonably-priced mortgage insurance. If a regular income from work is lost because of an accident, illness or unemployment, the insurance simply pays out a guaranteed benefit each month from which the whole (or a proportion) of the mortgage repayments can continue to be made. There is no deferring the amount due for repayment at a later date; the repayments are made just as they had been from the normal income from work.
What is more, the benefits of such mortgage insurance cover continue to be paid – free of tax – every month that the policy holder remains incapacitated for work or involuntarily unemployed, or for up to a typical maximum period of 12 months, whichever is the shorter time. Indeed, some policies even offer the option of extending the maximum payout period to up to 24 months, although the cost of the premiums for such additional protection is naturally higher.
Mortgage insurance will cover the monthly commitment due on the majority of mortgages since it is typically possible to arrange protection for up to the equivalent of 50% of the policy holder’s normal income from work, or £1,500 a month, whichever is the lesser amount.
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