Experts urge homeowners to review protection policies

Approximately 95,500 homeowners are now in arrears for their principal home for over 90 days and the majority of these may be potentially under insured on their mortgage protection. This is according to analysis of the latest Central Bank figures by Caledonian Life, who have said that of the 95,500 homeowners who are in arrears for three months, many could be unaware of the need to reflect any changes to their mortgage repayment structure in their protection policies.

Michelle Murphy, Caledonian Life representative in Westmeath said, “According to a Moodys report from less than a year ago 13.7 per cent of people in Westmeath have defaulted on their mortgage and unfortunately it is unlikely that this per cent has decreased with the latest Central Bank figures revealing that arrears are on the up and so too are restructure arrangements for home loans, with nearly 80,000 mortgage accounts classified as restructured. Interest only arrangements and reduced payment arrangements (interest plus some capital ) continue to account for the majority of all restructures in place. These will both have a knock-on effect on the adequacy of the mortgage protection policies people have in place.

This is because in the normal course of events the amount on an outstanding mortgage reduces as repayments are made. A mortgage protection policy is designed so that the amount of cover selected reduces in line with, or slightly behind the amount of capital outstanding on the mortgage. If someone switches to interest only payments, their mortgage protection cover is still decreasing, but the mortgage isn’t. So the mortgage protection cover in place is not now sufficient to cover their outstanding mortgage.”

Caledonian have set out the following example: A person was €30,000 in arrears and had €250,000 outstanding on their mortgage. In the event of the mortgage holder dying, if the partner or family were unable to fund the outstanding €30,000 owed to the lending institution, they could potentially repossess the house.

Michelle went on to say, “There is a solution available for those that find themselves in this challenging situation. A level term policy is for a set amount of cover and unlike regular mortgage protection cover, doesn’t decrease when capital payments on your mortgage have been suspended. With sufficient level term cover in place, the mortgage will be cleared should you die. However we would urge anyone considering changing any aspect of their protection policy to take expert advice before making any final decisions.”

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