Mortgage protection gap warning

HOMEOWNERS who have restructured their mortgage are at risk of not being properly insured on their home loans.

Up to 50,000 mortgage holders are believed to have restructured their loans but may not have adjusted their mortgage protection cover to reflect this change.

Caledonian Life head of sales and marketing, Greg Dyer, said: “Many people have ceased to make capital repayments by switching to interest-only on their mortgage. This is totally understandable considering the considerable financial pressure people are under.”

He said many people may not be aware or have forgotten that when they do this, their mortgage protection life cover also needs to be changed to a level term policy.

“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, an interest-only mortgage will be cleared should you die. Not a thought anyone likes to dwell on, but one that we need to be aware of to ensure our loved ones are financially protected,” said Mr Dyer.

Caledonian Life said that if a person bought a house with a mortgage of €300,000 in 2007 but switched to interest only terms in 2008, then the deficit between the sum insured on their mortgage protection life cover and the amount outstanding on the actual mortgage, could now three years later be as much as €27,522.

They said that if the mortgage holder were to die, the lending institution will not be satisfied with a shortfall of tens of thousands of the amount that’s still owed on the mortgage, and may not reassign the property back to the widow(er) and their children, unless the additional money can be found to meet this shortfall.

“The reason thousands of mortgage protection policies may now provide insufficient cover, due to their changed circumstances, is because this type of policy is designed to work with a normal repayment mortgage,” said Mr Dyer.

“We would suggest that those who have switched to interest only mortgages in the last number of years review the terms and the sum insured on their protection policy, to ensure it remains sufficient,” he added.