Buying your first home is such an exciting time, but it can also be a source of stress. There’s so much to do, so many boxes to tick (not to mention pack)!
In Ireland, by law you must take out a mortgage protection policy before you can successfully take out a mortgage. There are a few exceptions to this requirement – if you are over 50 years old or if you’re buying an investment property, but by and large, it is necessary.
What is Mortgage Protection?
Mortgage protection is an insurance policy, which pays out the balance of your mortgage to your bank in the event of your death or the death of your partner.
For convenience, many people choose to take this policy out with their mortgage provider – but it is worth remembering that you can shop around and may be able to save yourself some money in the process. This is just one of those common life myths – we debunk this and more in our article ‘7 Myths about Mortgage Protection’.
Along the road to securing your mortgage, you might come across some jargon - terms related to mortgages and mortgage protection which are unfamiliar. Take a look below, as we explain some of the most common terms you’ll come across.
This is the length of time within which you agree to repay your mortgage. If you are unsure of the length of your mortgage term, you’ll find the details in your original Letter of Approval.
Loan to Value (LTV)
This is a percentage figure. It represents the difference between your mortgage loan and the value of your property. For example, if your mortgage is for €165,000 on a property valued at €220,000 it would have an LTV of 75%.
Simply put, if you fall behind on your mortgage payments, you are said to have fallen into arrears.
Joint Mortgage Protection
This type of plan covers both you and your partner, and the balance of the mortgage. It will be paid out on the death of either party.
Interest Only Mortgage
With an interest only mortgage, your monthly repayment only pays the interest on your loan and does not repay any of the capital or mortgage balance. The original amount you borrowed stays the same for the term of the mortgage.
An annuity mortgage, or repayment mortgage, is the most common type of mortgage. It is made up of two parts: payments to cover the interest rate come off first, then when the interest amount has been paid off, your further payments come off the actual capital/mortgage loan amount.
With an endowment mortgage you pay interest on the original amount you borrowed and pay into an investment policy called an endowment policy for the term of the mortgage. At the end of the mortgage term you cash it in to repay the original amount you borrowed.
The level of cover you’re insured for decreases as your mortgage repayments decrease over time. Upon your death, the mortgage protection policy fully covers the outstanding amount on your mortgage.
Whether you’re a first-time buyer, or an established homeowner, who is looking to make some savings – shopping around for mortgage protection is always a good idea. Why not get a quote and see how we compare? If you’re switching from your current provider, don’t worry, we’re at hand to help guide you through the process.
We want to help our customers be there for whatever life throws in their way.
To learn more about our range of protection products, click here.