A mortgage is a long-term financial commitment and you have to maintain the monthly repayments for the full duration of the mortgage. That’s going to be over many years but non of us have the benefit of a crystal ball - so no one knows how your circumstances are going to change. So that must represent a big risk.

Mortgage Payment Protection Insurance (MPPI) is just one of a range of valuable insurances which includes critical illness insurance and life insurance, which you can use to reduce that risk and protect your family’s finances. The purpose of MPPI is to ensure that you have the income to continue paying your mortgage repayments if you’re off work for an extended period due to accident, sickness or unemployment.

The Top Tips

Some mortgage lenders may try to coerce you into taking out an MPPI policy along with your mortgage. If this happens, make sure you find out how much extra the MPPI cover will cost you each month. Then get on the Internet and get some competitive quotations. Most people will find that the Internet saves them up to 60%!

Mortgage lenders will only quote you for the amount of cover you need to meet your monthly mortgage repayments. The author recommends that you extend the cover to include the cost of your home & contents insurance, mortgage life insurance, and the cost of any investment plan you have arranged to repay your mortgage (the investment plan only applies to mortgages where you are only paying the interest each month and will be repaying the capital at the end of the mortgage).

You can take out MPPI at any time. Some people wrongly believe that you can only take out MPPI when you arrange the mortgage.

If your employment is casual or seasonal you will not be able to claim on an MPPI policy. Every policy has what are called exclusions and seasonal and casual work is a typical exclusion. Exclusions are the circumstances under which a claim will be refused. Be sure to read these exclusions before you take out the policy and, if your circumstances mean that you’re unlikely to be able to make a valid claim, don’t buy the insurance! Exclusions on MPPI policies can eliminate 50% of potential claims.

The cheapest is not always the best. So don’t automatically opt for the cheapest policy. The circumstances under which policies pay out do vary - so check them out cautiously. The premium quoted will be a reflection of the extent of the exclusions in the policy, the level of cover provided and the insurers general pricing policy.

MPPI is sold under a number of alternative names. So don’t get confused. It can also be described as Accident Sickness and Unemployment Insurance, Payment Care and Payment Cover. In principle, they are the same - but remember to check out the exclusions!

Most MPPI policies say that you must be off work for a minimum period before you can claim. The longest period you’ll find is 60 days but many policies reduce this to 30 days. Some will then backdate the payment to the first day you were off work. Look out for the details which you’ll find in the policy’s Terms and Conditions. Always check these out before you buy - and remember to compare like with like when you’re comparing prices.

Don’t confuse Mortgage Indemnity Insurance (MIG) with Mortgage Payment Protection Insurance. MIG p rovides insurance cover for a lender for any losses they might suffer as a result of a property on which they provided a mortgage being sold for less than the value of the outstanding mortgage. All payments under a MIG policy go to the lender, not you!

If you have Permanent Health Insurance your may not need MPPI. Check out the terms of you PHI policy and then make your mind up whether MPPI is adding anything extra.

If you already have Critical Illness Insurance be aware that there is a level of duplication with MPPI. MPPI will pay an income during the insured period for any illness that prevents you from working. Critical illness Insurance pays out a lump sum if you have any of the chronic illnesses listed on the critical illness policy (other conditions apply). So if you have a valid claim under your critical illness policy, you will probably also have a valid claim under your MPPI policy. However, if the illness that’s keeping you off work is not listed on the chronic list then only your MPPI policy will payout.

Do shop around. You’ll find that the Internet is the cheapest place to shop for MPPI and many web sites enable you to arrange cover immediately online.

The good bit - if you claim, the income is totally tax-free!

Michael is the chief editor of Express Life Insurance offer life insurance and mortgage life insurance.

Additional reading - What is Mortgage Payment Protection Insurance?

Share This

We all know that we should be putting aside an amount of money each month and saving towards our futures - right?

Well, if you’re anything like I used to be you get to the end of the month and the cupboard - or the bank account in this case - is bareif you’re lucky you just have enough to meet your monthly bills but you certainly don’t have anything left to play with.

Well - what if I told you that there were five very simple steps that you - yes you - could take to cut your monthly outgoings, increase your monthly income and thus free up money and create an amount each month that could be squirreled away for a rainy day?

Step One - Trim Everyday Expenses

We all have a mountain of essential payments that we must make every month; these include all our utility bills, our car, telephone, internet and even cable TV bills.

Although we’re all aware of these amounts draining our bank account every month, few of us give a second thought to whether we’re paying too much when often we actually are!

So, here are just a few things you could easily do to wipe off significant amounts from those bills - amounts which will, over time, compound to create a nice tidy little sum thank you!

Oh, and if you think about every bill you have I’m sure you’ll come up with many creative ways to reduce all of them.

Your Utility bills - have you considered switching your suppliers? Some suppliers in your area will be cheaper than others and all should give you a free quotation of how much you could be saving based on your previous month’s usage. You may get a further discount if you pay each month by direct debit.

Be aware of the amount of energy you use - switch to energy saver light bulbs, don’t put half a load of washing in the machine, wash-up small amounts instead of using your dishwasher every time and slowly but surely you’ll notice a significant reduction in your overall bills.

Your Car - shop around for cheaper car insurance, combine chores into one journey so that you drop the kids off on your way to work and do your shopping on the way home. The more ‘extra’ journeys you can cut back on the lower your fuel bill, the less often you’ll have to have your car serviced and the lower the mileage on the car when you come to sell it.

Step Two - Cut Interest Payments

According to industry statistics, the average home owner in the UK could reduce their annual mortgage payments by up to

Share This

This year the Bank of Canada has raised interest rates once for a total of a 20 basis points or a 0.20 percent increase. Is the Central Bank going to raise interest rates again and if so, when? This is an important question, since prospective Buyers may be putting off their real estate purchases for a variety of reasons: kids still in school, better to move in good weather, an expected salary increase. But then, does it make sense to wait? The answer is: it depends.

Let us first take a look at the historical charts. For the sake of our calculations, let us consider a 5-year term mortgage rate, which is the benchmark mortgage most consumers will take on at the time of purchase. An additional note to readers: this example is based on Canadian mortgages, which typically use compound interest. The principle, however, is equally applicable to American mortgages, with interest amortized on a straight line over the life of the loan.

CHARTERED BANK ADMINISTERED INTEREST RATES

[ [ June 1990 …………….. 14.25

[ ] June 1991 …………….. 11.25

[ ] June 1992 …………….. 9.63

[ ] June 1993 …………….. 8.95

[ ] June 1994 …………….. 10.75

[ ] June 1995 …………….. 8.63

[ ] June 1996 …………….. 8.50

[ ] June 1997 …………….. 7.00

[ ] June 1998 …………….. 6.95

[ ] June 1999 …………….. 7.70

[ ] June 2000 …………….. 8.45

[ ] June 2001 …………….. 7.75

[ ] June 2002 …………….. 7.25

[ ] June 2003 …………….. 5.80

[ ] June 2004 …………….. 6.70

[ ] June 2005 …………….. 6.05

[ ] March 2006 ………….. 6.45

Notes: all rates above are expressed with semi-annual compounding

The general rule of thumb is that if you can afford to make the monthly payment today, you should go ahead, lock in and buy a home. Especially these days that mortgage rates are on the rise but still low from a historic perspective - for example from the early 1990’s when double-digit mortgage rates were commonplace.

Buyers who are uncertain about rates should consider locking in for three to five years. This will offer them peace of mind, so they do not have to worry about the ups and downs. This added security, however, comes at an extra cost. A study conducted by Canada Mortgage Housing Corporation (CMHC) has shown that in the 1980’s and 1990’s borrowers would have saved money by choosing a one-year term mortgage and renewing every year, rather than locking into a 5-year term.

If consumers do not lock in and interest rates increase, say, by 50 basis points, what will be the additional cost? Let’s say you are about to buy a CAD $550,000 house with a $150,000 down-payment, and that you are considering taking up a CAD $400,000 mortgage for a 5-year term and amortized over twenty-five years. For a 5-year term at the current posted rate of 6.45 percent, the monthly mortgage payment will be $2,667.18, inclusive of interest and principal re-payment. If you wait for a year and rates increase by 50 basis points to 6.95 percent, the monthly payment will be $2,789.33. That’s a difference of $122.15 per month, which amounts to a yearly increase of $1,465.80 in your cash outlays or a whopping $36,645 for the life of a mortgage over a 25-year amortization period.

This is a saving you can hardly afford to miss out.

Luigi Frascati

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.

Share This