Dealing with mortgage payments

Question: The 2009 economic outlook is not good in my company's division, and I am worried that my job will be one of many to be cut next year. If this happens, I worry about falling behind on my monthly mortgage payments. What advice can you offer to a 36-year-old with a family of four on the best way I can maintain our family home during such uneasy times?

Answer: If a man's home is his castle, he certainly does not want to envision a day when mortgage payment collectors swarm the drawbridge to take possession of his family hearth. That is why mortgage payment protection insurance (MPPI) was created to cover a person's ability to pay even in times of financial crisis.

In the UK, some 700,000 homeowners expect to miss a mortgage repayment in 2009 and the most fearful age group, 35-44, are more likely to have young children and a large mortgage, according to the Life Trust Foundation.

Mortgage payment protection insurance normally pays a monthly sum towards a mortgage repayment in the event someone is out of work due to an accident, sickness, or - in your possible scenario - a redundancy.

MPPI can provide you some needed solace that you won't risk losing your home at the very same time you lose your job. It helps you to "hold the fort" until you get back to work again. Different types of MPPI can be taken out to cover against leaving work due to accident and sickness only; unemployment only; or due to accident, sickness or unemployment.

The majority of MPPI policies, for example, have exclusionary or ineligibility provisions that include being retired or self-employed; suffering from a pre-existing medical condition; or working part time. So shop around and carefully compare MPPI premium rates, terms and conditions.

Features of a good policy

A mortgage payment protection insurance plan may start after you have been out of work for an amount of time ranging between 30 to 90 consecutive days. A good policy would backdate to your last day of work and can continue to pay out for up to 12 months in length. Some providers extend policies to 24 months.

It is vital to realise, though, that mortgage payment protection will not cover the full repayment of your mortgage loan.

Mortgage protection payment insurance may not be appropriate for everyone, but in many cases it can provide the necessary safety underpinning to help shore up your family's fin-ances during a difficult stretch.

If house payments are your largest monthly debt, the MPPI leaves you free to focus on paying the smaller debts in a timely manner to avoid a serious credit crunch early on.

Independent financial advisers can offer mortgage payment protection plans for 40 to 80 per cent less than institutional providers.

If you decide to investigate an MPPI policy further, your financial adviser can answer questions as: How much does the premium cost? How long must I be unemployed before the policy becomes active? How long does coverage last? What if I am self-employed? Does the policy pay for property taxes and property insurance? Does the policy send a check to me or directly to the lender?

- The writer is a director of general insurance at Nexus. one of the region's leading financial advisors. The views expressed are the author's and do not necessarily reflect the views of Gulf News.

If you have any questions, please email: advice@gulfnews.com