When looking around for a new home, particularly if you are a first time buyer, it is easy to get caught up in different types of homes, locations, and interest rates without fully considering the implications of what a mortgage entails. With the help of research and some expert advice, most people will not take on a home loan which they cannot manage. But a person’s circumstances can change quickly and unexpectedly, meaning some can be caught short and end up behind on the repayments. Mortgage payment protection is a type of insurance product designed to guard against the risk of repossession if someone were to suddenly lose their income and be unable to manage their home loan.
For the above reasons this type of protection cannot be ignored and is arguably as important as things like buildings and contents insurance. If the borrower becomes unable to work due to unforeseen redundancy, injury following an accident or a long-term illness, mortgage payment protection will step in to provide cash payouts to help with the monthly commitments which would otherwise be a major headache. Designed as a short-term gap filler, most policies will pay out for between 12 and 24 months, depending on the provider, or until the person or has recovered or found a new job.
The first benefit will normally arrive between 30 and 90 days after the initial claim, although this period will vary from one company to another and some will backdate the money. How much a person gets depends on what level of cover they choose and when they take out the policy. Most are not designed to cover 100 per cent of the mortgage payments and associated costs but rather a large portion which will normally start at around 50 per cent and go up to a limit, normally about £3,000. The cash can be used towards the cost of the home loan, buildings insurance, and even things like water and electricity bills.
It is important not to get confused when looking at different policies as there are a range of typical terms and names which all apply to the same thing. Mortgage protection is also known as mortgage payment protection insurance and MPPI, although all three are exactly the same thing.
This type of insurance is part of the payment protection insurance industry, which is still under investigation by the Competition Commission after some big name companies were accused of selling cover to people who did not need it or who did not qualify. Many people will have encountered mortgage cover after it was offered to them by the very same lender setting up their mortgage. This is known as selling ‘over the counter’, and does not always lead to the best value of cover. Instead, some people have been minded to turn to more independent specialists such as the ethical British Insurance, which can provide mortgage payment protection at far lower prices than high street banks and insurers.
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