Life Insurance- Amount has reduced but mortgage has not.

O

Onceagain

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I have a fixed life policy in place which has always matched my outstanding mortgage. I noticed via online banking that the life policy has reduced but my mortgage amount has not, any ideas. Neither banking or life section of the bank can shed light. I was told to speak to financial advisor. Any idea's for those in the know. Many thanks.
 
Do you have an interest only mortgage? Are they both always the same and is the reduction much, it's hard to imagine the bank can't give an explanation. Have you had a look at your original policy, was there any indication that it might change on it, a review maybe? You obviously have not got a letter or anything about it, I used to get letters telling me I had to up the premium or take a reduction in cover but I assume this is not something you have come across.
 
Thanks for your reply, no it's not interest only. It's a fixed policy and the girl I spoke to was confused. I only noticed it today, I will obviously write in if I am still in the dark.
 
In the first 5 or so years of your mortgage, most of your repayments are taken up in interest. As time goes on, your repayments start eating into your capital. So it may just be that you have been paying very little off the mortgage itself.
 
But you said your mortgage amount had not reduced, do you mean the outstanding balance or the repayments or what has reduced so? Your actual mortgage balance must be reducing unless it's on interest only payments or something else unusual.
 
My mortgage balance has not reduced to the same level as the life cover. I am not talking about my mortgage repayments.
 
So normally both outstanding amounts go down together? It's not a fixed policy so, it's a reducing one. Did you have any missed payments, a payment break, moratorium or interest only period?
 
There are two separate issues here.

Your mortgage will reduce as you pay off capital. Check your mortgage statement to see if they have calculated it all properly.

It is not related to your mortgage protection insurance. That was set at the start. The cover reduced over the term of the mortgage, but based on an assumed interest rate.

If you are paying a higher rate that was expected at the time you took out the mortgage, the mortgage balance will have reduced more slowly.

Brendan
 
People have a misconception that the mortgage protection cover reduces exactly in line with the outstanding amount owed. With interest rates changing so much over the term of a mortgage, that is something that is simply impossible to do.

When you take out a mortgage protection policy, it is usually based on an assumed interest rate of 6% over the term of the policy (6% is the minimum assumed rate that a bank will accept). The level of life cover will then reduce based on you paying this interest rate. If the actual interest rate you are paying is lower, it will create a surplus amount of life cover. In a claim, the bank will take what they are owed and pay the rest to the estate. If they actual interest rate is higher for a prolonged period, it will create a deficit. In a claim, the bank will take the value of the policy and look to recover the remainder from the estate.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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