Protecting your mortgage repayments

Mortgage Payment Protection Insurance (MPPI) is designed to pay your mortgage when you can’t.

MPPI is a standalone policy you can take out any time to protect your mortgage repayments if you can’t work through illness or job loss.

You may be lucky enough to have savings that will tide you over, but if you have to rely on state benefits you may find you have to wait for several months or so before any cash shows up and then it will only cover the interest due.

If you’re concerned about your job prospects or have difficulties in paying your bills, then consider reviewing your MPPI options. You should look for a policy that covers your paying the capital – the money you borrowed – as well as the interest on your mortgage.

Most MPPI policies have a one to three month kick in period, so you have to be off work due to illness or losing your job for that time.

Generally ‘losing your job’ means redundancy – not voluntary redundancy - not being fired or everyone would take out a policy get fired and have their mortgage paid for them!

The policy doesn’t usually pay out if you knew you were going to be made redundant when you took out the policy or if your firm has experienced recent job losses.

Existing medical conditions are not covered; typically neither is not being able to work through stress, back ache, HIV, pregnancy, alcohol or drug abuse.

The policies that do make it through all the hoops usually pay out for 12-24 months as the insurers expect most people to recover from illness or to find work within that time.

The insurer will confirm you are out of work or sick before directly paying your mortgage to your lender.

Some points to watch when taking out MPPI are:

• MPPI costs are linked to each £100 of your monthly mortgage payment, expect to pay between £3 to £7 per £100 of mortgage repayments.
• MPPI is for your home loan, not buy-to-let properties
• Most mortgage lenders offer MPPI, but it’s not compulsory to take the product at all or the one the lender offers, so shop around and see if you can find a better deal. As usual, most insurance comparison sites are useful tools in finding the right cover.
• Some policies cover other monthly payments like credit cards, car loans and unsecured loans. These are called loan payment protection or credit card protection insurance.
• MPPI cover may not be right for you if you are self-employed, a contract worker or over 60-years-old.

Summary

• MPPI is insurance that protects your mortgage repayments for up to a year if you cannot work due to sickness or job loss
• MPPI costs between £3 to £7 per £100 of the mortgage repayment each month – for instance if you pay £400 a month, your MPPI payment is about £12 - £28 a month, depending on your provider.