Mortgage protection policies and trading up

[Brendan Burgess]

Say I have a mortgage of €100k with 20 years left.

I trade up so I borrow an extra €50k and extend the term to 30 years.

1) I can take out a new policy for €150k over 30 years. ( I could cancel or keep the original policy as I see fit.)

2) My existing policy might include a clause which would allow me to increase the cover and term, so I should get a quote from them as well. (How common are these clauses - they would be quite important for people taking out mortgage protection for a house on the ladder. )

3) Can I keep my existing policy with, say, Irish Life and take out a supplementary policy for the additional €50k with Irish Life or another lender?

Option 3) would be very useful if life cover had become expensive due to a health condition or just because I am a lot older.

 

[44brendan]

3) Can I keep my existing policy with, say, Irish Life and take out a supplementary policy for the additional €50k with Irish Life or another lender?

Absolutely! MPP's are just reducing term policies that can be assigned or re-assigned to banks to cover your specific cover needs.

 

[Monbretia]

Yes option 3 is fine in theory but your original policy has only 20 yrs left and your new loan is 30 yrs so it won't satisfy the bank.

I don't think increase clauses are common, don't recall seeing any really as either way it's a new underwriting proposition when you are increasing the term and amount so the insurer is actually going to re underwrite the whole thing from a health/age perspective so may as well have a new policy. The nearest thing would be a conversion option, that might allow you to convert to something more suitable.

 

[Mrs Vimes]

Hi Brendan,

I haven't worked out how much mortgage would be left after the original 20 years, but it might work to keep the existing 100k cover over 20 years and also get separate level term cover for the other 50k.

That way after the 20 years you still have 50k of cover in place which might be enough to cover the outstanding balance at that stage.

It would be worth getting quotes anyway.

 

[Monbretia]

But the bank won't take a policy with less term remaining than the new mortgage applied for so the old policy which has 20 yrs left won't do for the new 30 yr mortgage even if the 50k is enough at the end of the 20 yrs remaining. Bank will insist on full cover being in place for full amount for full term.

 

[peno]

But the bank won't take a policy with less term remaining than the new mortgage applied for so the old policy which has 20 yrs left won't do for the new 30 yr mortgage even if the 50k is enough at the end of the 20 yrs remaining. Bank will insist on full cover being in place for full amount for full term.

Correct.

I got into this situation previously - I assigned a life assurance policy that made up the difference and was a normal term life not just decreasing mortgage protection. But the term was 2 years shorter than the mortgage so didn't satisfy the bank.

I argued it and showed how the outstanding balance at that time ( in 25 years) would be minimal as the mortgage would be practically cleared.
There response was that it was not their rules but a black and white rule in accordance with regulation and they had no flexibility around it.

 

[Brendan Burgess]

But the bank won't take a policy with less term remaining than the new mortgage applied for so the old policy which has 20 yrs left won't do for the new 30 yr mortgage

OK, so when trading up, it would be worth trying to keep the term the same. If I have €100k left with 20 years, I should try to get a mortgage for €150k for 20 years. Then taking out an additional policy would be straightforward.

I wonder if the term was longer, could you take out €50k level life cover, so that when the first policy expired, there would still be €50k in place?

brendan

 

[Steven Barrett]

Most mortgage protection policies are fairly inflexible. You premium is fixed for the fixed term of the policy.

New Ireland have a convertible mortgage protection option that you can extend the term and increase the cover (within certain limits). It is a very good options for first time buyers who intend on trading up in the future.

I have also used it a lot for people who are overweight. They may develop health problems in the future and be unable to get mortgage protection cover. With the conversion option, they don't have to undergo medical underwriting.


Steven
www.bluewaterfp.ie