Making cents: Insurance top-up may follow mortgage changes

By Gráinne McGuinness

Despite the fact that the economy has now largely recovered, tens of thousands of Irish mortgage-holders still owe more than they would have originally hoped by this time.

Many individuals, couples and families struggled and some fell into arrears during the recession.

There are now warnings that a lack of the correct mortgage protection cover may be an issue, both for those who have restructured and those still in arrears.

According to the Central Bank of Ireland, at the end of 2017, just short of 120,000 private dwelling houses were classified as restructured.

Royal London — a company which sells mortgage protection, life assurance, etc — has pointed out the potential issue.

“Many families who were struggling to make their mortgage commitments would have entered into new agreements with lenders,” Barry McCutcheon, proposition lead at Royal London, said.

“We believe a significant proportion of these 100,000-plus families may not have reflected these changes in their mortgage protection cover, and therefore have become underinsured as a result.

“This means that if either of the mortgagees were to pass away, the surviving partner could be left with a shortfall on their mortgage, at a time when they can least afford it— which understandably, would be a great source of shock and worry for this person.”

Royal London used the example of a couple who had taken out a €300,000 mortgage for 30 years in 2004, and also took out the equivalent amount of mortgage protection.

In 2014, their bank agreed to switch them to interest-only for four years and they then returned to full repayment in 2018.

Should one of the couple die, the individual left behind would currently have a shortfall of €11,569 — that being the difference between what they owe and what a typical mortgage protection policy would cover.

Mortgage cover is there to ensure the home is left free and clear in the event of a death. None of us like to dwell on the possibility of tragedy but we should always try and prepare for it.

If one parent in a family was to die, the last thing they would want is their partner and children to be left with a shortfall on the mortgage, adding to financial strain.

“Mortgage protection policies are a low-cost but relatively inflexible product designed to decrease in line with a typical capital and interest mortgage,” Mr McCutcheon of Royal London, said.

“But when those payments are interrupted or reduced, then there’s a likelihood that a gap will grow between the outstanding mortgage including arrears and the policy cover.

"This is because the assumed capital repayments have not been made.

“With people so focused on getting themselves to a point where they can afford the mortgage, it’s understandable if they have not thought to check whether their existing mortgage protection cover is still sufficient.

"Even those that have managed to get their mortgage back on track could have an issue.”

If you fear you may be in this situation, now is the time to review your cover. Mortgage protection policies generally cannot be restructured, so an additional policy may be needed.

Even if you got your original insurance policy from your bank, you can go elsewhere for any additional cover.

In most cases, your bank will only offer you products from one provider, whereas if you go to an independent broker, they will be choosing a product for you from everything available on the market.

If you go to a broker, bring details of your existing cover and your current mortgage position. It may be cheaper to keep your original mortgage protection policy going and buy another policy for the top-up amount.

You should check the cost of cancelling the original policy and replacing it with a policy for the full amount of your new mortgage.

Unfortunately, you may find that your premium is higher than when you originally took out cover, as your age usually affects your premium.

Deal of the week

Irish-owned DIY store Woodies have reached the milestone of 30 years in business and are marking the occasion with a range of special offers, available online and in their 35 stores nationwide.

With sunny days finally upon us, some of the offers available are aimed at getting the garden all set for summer.

Pick of the bunch is a the Kansas 6 Piece Patio Set, which includes a round table, four chairs and a Parasol, perfect for sharing an outdoor meal with friends and family.

The chairs are stackable for easy storage but it can be left outside all year round.

The set is on sale at half-price, down from €299.99 to €149.99.

If you want to cook outside too, they also have 20% off all barbecues in their Phoenix range.

For €399.99, you can get a stainless steel four-burner gas grill with cast iron cooking grill, thermometer and condiment rack.

If you want to start a little smaller, they have a 47cm charcoal kettle barbecue on sale for €63.99, down from €79.99.

If there are any consumer issues that you’d like Gráinne to address or if you have problems that Gráinne could help with, she can be contacted at [e-mail].