Attractive prices have made homeownership a possibility like never before, and for most people, this would involve mortgage financing. In an end-user market, mortgage liability is taken on with the good intention of providing a home for the family. But what happens in the unfortunate event of the death of the house owner?
The property itself comes in handy as it provides a cover for the surviving family to stay on in the UAE on six-month renewable residency visas. That said, a will is often cited as a prerequisite to ensure uninterrupted homeownership for the family. "In the UAE, expatriate owners of real estate can make a will [for their real estate] as per their home country law. This is currently a grey area," says Nita Maru, director of The Wills Specialists, a legal consultancy firm.
"Although there is a reasonable argument to the effect that the UAE's personal Status Law allows disposal of real estate by will, there is a counter argument to the effect that the UAE Civil Code is clear that Sharia applies to real estate. As the current legislation is open to interpretation, on balance it is certainly better to have a will than not, as without a will, the Sharia will be applied and there would be no evidence of your intentions," Nita maintains.
However, even if the inheritance part is sorted out and the family gets to live in the house, what happens to the remaining mortgage payments? "Where an expat property owner dies without having a will, the local courts determine in which proportions the property is divided among the expat's heirs," says Shahram Safai, partner at law firm Afridi and Angell. "Once the expat's heirs have been established by such court, the heirs would be responsible for payment of the outstanding mortgage payments. Title to the property could be transferred into the heirs' names."
It is, therefore, critical that mortgage payment is taken care of in order to ensure the home remains with the surviving family. The way out of such an unforeseen situation would be for the homeowner to make provision for life assurance cover on the mortgage. "If there is life assurance in place, this will repay the mortgage and the property will become part of the deceased's estate; this will then be passed on according to their wishes and the laws of the country," says Darren Ashley, managing director of Candour Consultancy, financial and insurance consultants.
Life without cover
With no life cover in place, what eventually happens is likely to depend on the situation. "If the property is owned and lived in by a family, it is likely the bank will give them some leeway. As the family did not have life cover in place, the bank will only be so lenient and will repossess the property if the loan is not ‘serviced'," says Darren. "However, if it was an individual who owned the property, the bank is likely to sell the property as quickly as possible to recoup the money they had lent. Any proceeds from the sale not used to repay the mortgage will then become part of the deceased's estate but in the current property market, this is a rare occurrence," points out Darren.
While technically, it is for the courts to decide on inheritance issues and the remaining mortgage payments, in the case of joint ownership of a property, the mortgage is passed on to the family of the deceased. "In a situation where the property, and therefore the mortgage, was in joint names, there would certainly be liability on the surviving spouse to either repay the loan or continue with the monthly mortgage repayments," says Darren. "Otherwise, there would be no legal liability unless someone has acted as guarantor to the mortgage as the arrangement was between the bank and the individual."
Easing the pressure
Evidently, life assurance provides the relatives with a sum of money sufficient to repay the mortgage; allowing the property to be passed on to the deceased's loved ones without lumbering them with a huge financial burden. This becomes particularly important where there are children in the family. "The surviving spouse may have to give up work to look after the children or cover the cost of a live-in nanny," says Darren. Besides, there are costs involving food, school fees, etc. "By removing the major family expense, there is a lot less pressure on the surviving family at a time when they have already lost a loved one."
Despite its significance, there appears to be a general lack of interest in mortgage life assurance cover. It could also be a situation where most people conveniently ignore it. "People are certainly aware it exists and most accept that, ideally, they should have it. However, there is certainly resistance to taking it out — whether this is because it admits that they are mortal, they are convinced ‘it will not happen to them' or ‘they have not had time yet'," says Darren.
For prudent property owners, life assurance policy will cover them for a set amount, either for a pre-defined term or the whole of their life. It is also possible to get specific mortgage cover where the amount of cover decreases every month in line with the loan amount outstanding — which eventually translates into lower costs.
Terms vary from person to person
The cover and the term for such life assurance will vary substantially from person to person. Someone who needs cover for a mortgage will need it for the mortgage term, which is usually 25 years.
Likewise, the premium varies hugely too and will depend on both the amount of cover, how long the cover is required for, the age of the persons to be covered, whether they smoke or not and their medical history. "As such, it is impossible to give a generic answer on these variables," says Darren.
The payment process is flexible. The policyholder can pay for cover either monthly, quarterly or annually. "The amount of the premium will primarily depend on four factors: the amount of cover they require, the term they require cover for, their age and whether they smoke. There may also be a ‘loading' of the premium if they are deemed to be of above average chance of dying young due to their lifestyle," explains Darren.
And for those dissuaded by thoughts of adding to the costs of the mortgage, it would be encouraging to know that life assurance is not hugely expensive. "If they cannot afford this, then they cannot really afford the mortgage. Life assurance will cost less than the weekly food shop, less than the monthly utility bill, less than a new pair of jeans and less than a Friday brunch," says Darren.
Homeowners looking for mortgage life assurance cover just need to approach an independent financial provider for comparative quotes. Rather than dealing with death, this is an investment that is all about living peacefully — with the thought that should the worst happen, homeownership for one's family would remain uninterrupted.