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Why first-home buyers need mortgage protection insurance

Your first home is usually your first big investment. Whether you buy a relatively cheap do-up or a flashy apartment, you’re likely to be taking on hundreds of thousands in debt and entering into a +25-year contract. It’s a huge commitment.

Even if you’ve done your homework and you’re confident that you can cover your monthly payments, life sometimes throws a spanner in the works. That’s why mortgage protection insurance is so important – it covers your payments if you’re seriously ill or injured.

Mortgage protection basics

Mortgage protection is designed to keep your mortgage payments going if you can’t pay them. Like life insurance, it pays out a lump sum if you die, usually the remainder of your mortgage at the time. Unlike life insurance, it can also be set to cover illness, injury or job loss.

If you are seriously injured or you’re diagnosed with a serious medical condition that stops you from working, mortgage protection covers your mortgage while you’re away from work. The amount of cover is usually set to match your monthly repayments. You’ll also set a waiting period of 30, 60, or 90 days, and your payments will kick in after this time. Payments will continue until you return to work, or for a set ‘benefit period’ – often two to five years, or until the mortgage is paid off.

Protecting yourself and your family

Although couples buying a home together and individuals buying on their own have different needs, mortgage protection is invaluable for all types of home-buyer.

If you’re buying on your own, you’ll also be paying the mortgage on your own. Mortgage protection makes sure you’ll be covered if you’re dealing with sickness or injury, so you can focus on recovery rather than making payments. Of course, it usually covers only your standard monthly mortgage payments, so you will need to have savings or another type of insurance to cover other expenses.

For couples buying together, mortgage protection ensures that repayments are covered, even if one of you is unable to earn income. If you’re injured, sick, or you lose your job, mortgage protection will cover your portion of the mortgage payment for a set time. Often, your partner’s earnings will be able to cover other expenses. If one of you dies, part or all of the mortgage will be paid off, making life at least somewhat easier at an awful time.

If you’re the breadwinner or higher earner, your injury or illness could have devastating consequences, so mortgage protection is particularly important.

Staying afloat after illness or injury

If you’re a young, healthy person when you buy your first home, the possibility of a serious illness or accident might seem remote. Although most people manage to avoid life-altering medical events, there’s no way to know whether you’ll be one of the unlucky ones.

Mortgage protection insurance generally covers your repayments if a medical event or accident stops you from working. If you’re injured and need time off to recover, or if you’re diagnosed with a disease or condition and need time for treatment or rest, mortgage protection can help. Depending on the type of insurance you choose, your payments will be covered for a set period or until the mortgage is paid.

Of course, the cost and level of your cover will depend on the amount of your loan, your age, your health, and your job. Older people and those in high-risk professions usually have to pay higher premiums to reflect their level of risk.

Lose your job, not your house

In addition to mortgage protection insurance you can also take out a policy for redundancy cover in the event you were to lose your job. Losing your job can be devastating to your sense of self, and your lifestyle. Some mortgage protection insurance will cover repayments if you’re fired or made redundant, giving you time to look for a new job.

Cover depends on whether you have a full-time or part-time role – part-timers are generally not covered. It will also depend on how you lose the job – if you quit of your own accord, you won’t be covered.

As with illness or injury, your payments will usually be covered for a set period. Unlike illness or injury, this is usually fairly limited – three months is common. It’s designed to give you a chance to look for a new job without the stress of the mortgage hanging over your head.

Preparing for the worst

Although money can’t make up for the loss of a loved one, it can make day-to-day life easier at a horrible time. If you’re a first home buyer, mortgage protection offers peace of mind that your partner or family won’t have to deal with repayments after your death.
Mortgage protection usually covers the amount of home loan remaining at the time of death, meaning your heirs or co-owner will own the house debt-free. It’s a simple way to deal with the mortgage if the unthinkable happens.

Preparation, protection, peace of mind

Taking on your first mortgage can be a scary prospect. It means committing to paying off a vast sum of money for the next few decades, whatever happens. Even if you’ve ticked all the boxes and made sensible choices, you never know whether illness, injury, job loss or worse will derail your plans.

That’s why mortgage protection insurance is so important. Knowing that your mortgage repayments will be covered and your house protected gives you peace of mind, even if the unexpected happens.

Need mortgage protection insurance? Get in touch with the experts at Global Finance to find out more.