mortgage protection

Mortgage payment protection from the specialists, a product that is backed by the mortgage adviders association.

Is mortgage payment protection good value and is there a better way of protecting a mortgage than using the lenders mortgage payment protection policy?

With interest rates at their lowest since the 1950’s borrowing money has rarely been so cheap or tempting. As debt levels have soared, the bleak state of the economy and a series of financial scandals have hit corporate profits and forced companies to cut thousands of jobs. This combination of high levels of consumer debt and job insecurity has meant that it is much easier for insurers to convince mortgage borrowers that they need mortgage payment protection.

But critics of mortgage payment protection are warning borrowers that these plans are not always good value for money. They claim that some mortgage payment protection policies are often expensive, unnecessary and could leave borrowers with thousands of pounds of debt if they buy the wrong mortgage payment protection. Mortgage lenders, they point out, often make more money from the mortgage payment protection than from the mortgage itself.

"You need to read the small print very carefully" says, Richard Bannister-Greene of British Insurance Brokers "Mortgage payment protection policies can be worthwhile or they can be a real rip-off. In this low interest environment banks are competing more on mortgage rates and are looking to make money in other areas particularly mortgage payment protection."

Mortgage payment protection sounds good in principle, but the Financial Ombudsman says that mortgage payment protection claims are often refused because policyholders have been sold mortgage payment protection for which they are clearly ineligible. Many salespeople are not specialists in the field of mortgage payment protection policy terms and conditions, "Their advice will therefore not be of great assistance to mortgage borrowers, who may be uncertain of what they are paying for and unable to judge whether the mortgage payment protection is suitable for them." Says Tony Boorman, Principal Ombudsman of the Insurance Division.

Most mortgage payment protection policies, for example cover people only if they have been ‘actively working’ in full employment for at least 16 hours a week for about six months when they take out the mortgage payment protection cover. Many mortgage payment protection policies exclude self-employed and short-term contract workers.

The Ombudsman found that almost all mortgage payment protection policies refuse claims that arise from stress or other forms of mental illness, although some mortgage payment protection policies will pay out if the insured persons are receiving treatment. They will not be covered under their mortgage payment protection policy if they are sacked from their job because of mis-conduct, or they take early retirement.

Mortgage payment protection can also be expensive. The cost of mortgage payment protection cover varies according to the lender, value and time span of the mortgage, but typically the amount paid is calculated per £100 of mortgage payment protection cover.

Borrowers are sometimes led to believe that mortgage payment protection is a condition of getting a mortgage says Mr Bannister Green but they are in fact under no obligation and ought to shop around to insure that they are not paying more than they need to for mortgage payment protection.