What is Mortgage Payment Protection?

Introduction

Mortgage payment protection is an insurance program that has developed in recent years in UK. People who pay less than 20% down payment on their loans are typically required to purchase this insurance to qualify for finances. The same insurance scheme is called mortgage insurance in US.

In the US mortgage payment protection scheme, the co-purchaser like a spouse receives full or partial payout if the principal borrower dies or permanently disabled. Mortgage payment insurance is one of the most expensive forms of insurance as it protects the payment of a person’s mortgage in the event of unexpected catastrophe.

A good number of reputable insurance advisers are of the view that it is better to go for higher amounts of life insurance and/or disability insurance rather than mortgage payment insurance. This is because life insurance and disability insurance premiums typically cost half the amount of mortgage insurance premiums. However in case of some people- like the above 45 age group, those with poor health conditions and smokers- the life and disability insurance premiums are higher than usual. Mortgage insurance may be a better option for these people.

However mortgage payment insurance companies generally do not offer coverage to mortgage in the event of the borrower becoming unemployed. Unemployment benefits are much lower than what a person earns if he were working and so inadequate for paying mortgage installments. Therefore such a situation can very well cause the borrower to lose their home.

However the unemployment situation is protected in UK and this is the primary reason people go for mortgage protection. The monthly installments cost about .24% of the mortgage amount. However to apply for mortgage payment protection in UK, an unemployed beneficiary has to register with an unemployment agency and also give evidence that they are actively trying for employment. The mortgage payment protection continues to pay the mortgage for a set term- usually 12 or 24 months. It is possible to buy additional months, but the prices are much higher for this.

UK mortgage protection schemes also offer payoff of mortgage in the event of death or total disability. This can immensely help a surviving partner or inheritor as they get to own the full property.

Mortgage payment schemes are usually offered for fixed terms. The payments to the insurer remain the same. However if the value of the property changes during the tenure of the mortgage and the borrower has to go for further loan, the insurance amount has to be modified accordingly.