Life cover for mortgage

Chipboard

I have a reducing term life policy with taken out in 2003 for 215k over 30 years with a very competitive premium. The sum assured is now c170k.

My wife and I are considering buying a house and we would be borrowing c230k.

I'm wondering if you have to obtain joint life cover for 230k or would the bank accept my policy for 170k, an additional policy on me for 60k level term and a reducing policy on my wife for 230k.

I'm sure that this would work out cheaper for us than a new policy.

eagle_i

Hi Chipboard, it is not clear in you query whether you are clearing the initial mortgage or taking out an additional mortgage for the 230k. Anyway, to satisfy the lending institution you will need to have cover in place for the full 230k and for the full term of the new mortgage. If the new mortgage is in joint names then the policy needs to either joint life or you need two separate policies at least equivalent to the mortage amount and term.

This can be made up of your existing mortgage protection policy with the sum assured of 170k plus a new 60k policy, this is assuming the existing 170k policy is in joint names. However it may not work if the term does not match, the term of the mortgage protection policy must match at least the term of the mortgage. eg. The new mortgage is for a term of 23 years and lets assume the term left on the existing 170k mortgage protection policy is 23yrs and 1 month, in this instance yes the existing policy along with the new 60k policy will be acceptable. However, if the mortgage protection policy is 22 years and 11 months, then the answer is no, because it is less than 23 years.

Now to the cost, without knowing your date of birth, smoker status etc.., I am unable to run a quote for you. But from experience, 9 times out of 10 you will find taking out a new policy for the full amount of the mortgage will be more cost effective than taking out an additional 60k policy along with the current 170k policy. Mortgage Protection policies by their nature are inflexible, this is not a bad thing as it is the most cost effective method of providing cover for your mortgage, it is just they are not designed to cover multiple mortgages unless you set it up that way at the out set.

One final note, if you intend to use the current 170k policy, you need the previous mortgage provider (if different from the new lender) to complete a deed of reassignment to you, in order to allow you to assign that policy to the new lender.

Chipboard

Sorry. We sold our first house in early '07 and rented since then so debt free at the moment.

I know that from the point of view of 'cover' my plan to keep my existing policy and give them an additional level term policy works but I was wondering if the mortgage provider is likely to accept it or if their systems would be capable of doing it. Phoned BOI this am. Got the usual run around from Billy to Jack and on to Mary with each saying that the other dept would be able to answer my query. Promised a callback which never came. I think the long and short of it is that if you want a bog standard 'vanilla' mortgage BOI is fine but don't ask them to think outside the box.

Thanks for telling me about the reassignment - will need to get on to that as its looks like I won't be doing business with BOI again.

eagle_i

Sold in 2007, that was a bit of luck, or genius!

With regard to keeping your current mortgage protection, as I said above you could find that you are better off with a new mortgage protection plan for the full 230k. My advice is to shop around, talk to an independent adviser, look on the internet there are numerous discount brokers offering up to 90% discount on the first years premium. If you do take out a new policy for the full amount, there is no point in holding onto the old policy as the sum assured in reducing to Nil over the term, you will be better off taking out a term assurance plan (level/indexing) if you need additional cover.

Chipboard

eagle_i wrote: »

Sold in 2007, that was a bit of luck, or genius!

Mulled over selling short for about 5 months in late 2006. Plan was to rent and buy back (not necessarily the same house) after the **** hit the fan. Wasn't easy to work up the courage to do it as its a pretty big statement and if you get it wrong you end up the bo**ocks who got off the sky rocket property ladder and got left behind. Decided to go ahead with it at the end of 2006 and got out by the skin of our teeth. We had a few nervous weeks prior to closing the sale when were hoping someone would shut George Lee up as he was in danger of screwing up our sale with his very negative (very accurate) commentary.

eagle_i wrote: »

With regard to keeping your current mortgage protection, as I said above you could find that you are better off with a new mortgage protection plan for the full 230k. My advice is to shop around, talk to an independent adviser, look on the internet there are numerous discount brokers offering up to 90% discount on the first years premium. If you do take out a new policy for the full amount, there is no point in holding onto the old policy as the sum assured in reducing to Nil over the term, you will be better off taking out a term assurance plan (level/indexing) if you need additional cover.

Will do that if I need to but spoke to two banks today who have no issue taking multiple policies. Never received the callback from BOI. Didn't really expect it as they are never able to do anything which doesn't fit precisely into the neat little box they have decided you need before they have even met you.