For most people who own a home their property is everything. They have invested untold amounts of money in a mortgage, improvements, second and third mortgages, and so on. To lose a home is devastating from a personal standpoint, but it can also mean financial ruin that lasts a lifetime. Fortunately, there is something you can do about it in the form of mortgage payment protection. Purchasing a mortgage payment protection plan is a way to reduce the risk of losing a home should home buyers find themselves unable to make their payments.
How Mortgage Payment Protection Works
Mortgage payment protection is more or less an insurance policy that protects you against foreclosure. You would apply for this policy either through your home mortgage lender or a third-party provider, and make monthly payments just like you would for life insurance or health insurance. Should you become unable to pay your mortgage due to involuntary layoff or health issues, the insurance policy would kick in and make those payments for you.
A typical mortgage payment protection plan will make your mortgage payments for about 12 months. Many of them will not go beyond the 12 month period due to the fact that it's assumed a home owner's circumstances will resolve themselves by that time. If not, the homeowner might be forced to sell the house in order to get from underneath the mortgage. In some cases, when homeowners can neither make their payments nor sell their home, they simply walk away and leave the house to the bank.
What Mortgage Payment Protection Covers
Mortgage payment protection covers your mortgage payments if you lose income because of circumstances beyond your control. As previously mentioned, an involuntary layoff or health issues are two good examples of such circumstances. However, if you have knowledge of a pending layoff and then try to get a mortgage payment protection plan, you may have to be dishonest to do so.
If it's found out later on that you knew of your impending layoff prior to purchasing a policy, you could be forced to repay the insurance company the amount they paid your mortgage lender on your behalf. Furthermore, most plans require a minimum of six months of payments before the policy will cover your mortgage. This is done to prevent fraud.
Likewise, many pre-existing health conditions that carry a high risk of temporary disability will likely be excluded from coverage. For example, if you have a degenerative condition which will force the need for knee replacement surgery, and this condition exists prior to your purchasing of a protection plan, the plan probably will not cover your mortgage payments while you're recovering from surgery. Pre-existing conditions are flexible from one provider to the next, so do your homework.
Mortgage Payment Protection and Seniors
People age 64 or older will not be able to purchase mortgage payment protection due to the fact that pensions kick in and health risks increase substantially at that age. It's also generally assumed that seniors will have paid off their mortgage in full by that time; those who don't have proven to be financially unreliable. Companies offering mortgage payment protection plans must weigh the risk of every policy they write; seniors pose too high a risk to begin with, without adding in poor financial practices.
Purchasing Your Mortgage Payment Protection Plan
Most people considering purchasing a mortgage payment protection plan are content to do so from their primary mortgage lender. While this is convenient and easy, it's almost always a bad idea. According to industry experts mortgage lenders typically charge up to five times more for their mortgage payment protection plans than third party insurance carriers. Mortgage lenders know they have a captive audience and are willing to charge higher fees.
Independent insurance carriers on the other hand, are trying to compete for your business. They will almost always offer the best rates on the market with the most benefits in return. But just like you do with auto and homeowners insurance, comparative shopping is the key.
Choose half a dozen insurance providers and contact them for ballpark figures. You can shortlist down to two or three providers and then negotiate with each one accordingly. If you know what you're after, and you can bargain in confidence, you should be able to get a great policy at a great rate.
Finally, make sure you read and fully understand all the details of a mortgage payment protection policy before you sign on the dotted line. The insurance provider is probably not going to go out of his way to inform you of all the details that may make you ineligible. It would simply be money down the drain for you to purchase a policy and then find out later that it will not cover your mortgage payments. If need be, get your attorney involved so that you know what you're signing.