When taking out a mortgage, it’s likely you’ll be offered protection in case you are unable – for some reason – to make repayments. Darren Polson explains how it works and why it could be useful
So, you’ve decided to buy a new home.
Whether you’re a first-time buyer or you just need a bigger place, it’s probably something you’ve been thinking about for some time… but now you want to just get on with it.
It’s a hugely exciting time but it can definitely also be a stressful process and let’s face it, it’s arguably one of the biggest financial decisions you’ll ever make in your life. Maybe even the biggest.
Buying a home: Where do I start?
But where to start, especially if you’re doing it for the first time?
A good place to begin is to work out your budget – most people will need a mortgage so it’s vital to look at how much you think can afford and how much you might be able to borrow.
What might your repayments be, and how will you manage once you take into account your other bills?
Ideally, you’d want to get all of this information together before you start your search for that dream home and an independent mortgage broker can certainly be of great assistance here.
They can help calculate what might be affordable and investigate a range of mortgages from lenders across the whole market to try and find one that meets your needs.
You’ll need to provide some basic information on your current circumstances and typically you will then receive a Decision in Principle.
This is an initial promise from a lender that they will lend you a certain amount, subject to a number of other factors. This gives you an indication as to how much you might be able to offer for a property.
Do I need protection when taking out a mortgage?
So you’ve decided you want to buy, you’ve started to work out your finances, and in all likelihood you’ve probably seen some homes that would be perfect. Job done? Not quite.
One area that potentially might not be front of mind when you decide to buy is that of protection.
Protection comes in all forms, from life assurance and critical illness to income protection, and there are options on the market which cover almost every eventuality.
There is no question that protection services and products can be a crucial part of financial planning, especially for those with mortgage and family commitments. For who lose their job or regular source of income, it can be devastating. And it must be said that the welfare safety net is flimsy at best.
No one who owns or rents their home would choose not to have home insurance. If it makes sense that you protect your home and its contents, why wouldn’t you protect yourself and your family?
Life is complicated, and we have no way of knowing what it has in store for us. Insurance and protection exist for a very good reason, but they are not there to suddenly increase or grow your wealth but to simply maintain what you have in times of hardship, and provide some security.
Turning back to the subject of obtaining a mortgage, the amount you pay every month will likely be your biggest outgoing. But your biggest outgoing keeps a roof over your head. And if, for whatever reason you no longer had a regular income, what then?
How much does mortgage protection cost?
There is a cost to this protection, no one should try to pretend otherwise, but it is important to note a range of factors that can have an impact on this cost.
Age is possibly the most obvious and, broadly speaking, the younger you are, the lower the cost.
Some occupations may also be classed as a higher risk and therefore result in higher premiums.
Health is also very important and whilst many of us will be aware that being a smoker or having higher levels of alcohol consumption can mean higher costs for life cover what may be less well known is that your height and weight, essentially your BMI, can be a major factor in how much you pay in premiums, or even whether you can obtain life assurance.
All individual’s circumstances are different, and not everyone will need every type of insurance or protection. Insurance and protection can be a complex area to navigate and again, a professional mortgage broker can be a vital source of help in finding what’s right for you.
Peace of mind is a vital commodity, and we all want to protect ourselves and our families against the challenges which life throws at us.
It may seem odd in terms of financial planning to pay for something you hope you won’t ever require, but maybe it’s better to have it and not need it, than to need it and not have it.
Darren Polson is head of mortgage operations at Aberdein Considine
