Mortgage protection
This content applies to England only.
Housing laws vary between England and Scotland. Get advice relating to Scotland
When working out how much you can afford to put down as a deposit, take into account the other costs of buying and moving. These may include insurance to cover your repayments.
Do I need mortgage protection?
Because you run the risk of losing your home if you don't keep up your mortgage payments, you may want to take out 'mortgage protection' insurance which would help you if, for example, you have an accident which means you are unable to work.
As well as the solicitor's fees, building insurance and other costs linked to buying, you may also have to pay:
- the premium for a mortgage indemnity guarantee, especially if you are borrowing more than 90 to 95 per cent of the purchase price
- premiums for mortgage protection insurance and/or accident, sickness and unemployment insurance.
What is a mortgage indemnity guarantee (MIG)?
This is sometimes called a mortgage insurance premium (MIP). This covers the lender if you default on the loan (don't pay off your mortgage), though if this happens, you are still likely to be pursued by the insurer for the money they paid to your lender. You are likely to have to take out a MIG if you are borrowing 90 per cent or more of the value of the property.
What is mortgage protection insurance?
This is life insurance, which would pay off the loan if you (or your partner in a joint mortgage) dies. Endowment mortgages already include life cover. It's important if you have a joint mortgage or a dependent who would need to go on living in your home if you die. But if neither of these things applies, you may not need this sort of insurance.
What is accident, sickness and unemployment (ASU) insurance?
This is sometimes confusingly called 'mortgage payment protection insurance', but is different from 'mortgage protection insurance' as above. It's cover that would keep up your repayments for a time if you are unable to work because of illness, accident or being made redundant. You need to check carefully if the policy is suitable because many will not cover self-employed, part-time or contract workers, for example.
ASU policies are quite expensive. Also, most will not pay out until a few months after you are unable to work, and then for no longer than a year or two. So whether you need this kind of cover may depend on whether you have enough savings or other assets that could keep you going for a while.
