Mortgage Protection insufficient for a restructured mortgage

[JD2021]

Hi,

Just completed a review of an arrears challenge and over view of my Mortgage, thankfully was able to clear arrears and get a better understanding of everything. My mortgage was purchased by vulture fund and got some great advice on AAM and MABS.

One issue that cropped up, yet to be resolved was my mortgage protection policy with critical illness. I've maintained this Seperately at all times, it's been active for 20 years, reducing in value as mortgage Matures.

A split arrangement was arranged in 2014 by original mortgage provider, I was fully aware this involved extending mortgage maturity date (my mistake). As a result the policy will actually expire a number of years before mortgage expiry date.

I'm now 54 with some health challenges and I'm wondering has anyone ever come across such a scenario. I was genuinely not aware of this problem until a raft of documents was requested to review.

It's highly unlikely the current policy could be extended and my age, health suggests I'd struggle to get cover after policy ends.

I've a few years to go before policy expires but just thought I ask if anyone as advice or guidance on my options, I'd be guessing about 30k of cover required for a period of 8 years.

Thank you

 

[Steven Barrett]

As part of the arrangement they should have ensured that your mortgage protection covers the full term of the new arrangement and is not short. Usually they ask for two refusal letters from two insurers and that's it but it doesn't look like they have got that far. It looks like you are just going to have to run the risk of not dying in the uninsured period and your family being able to meet the repayments if the unfortunate does happen.

Do you have life cover in work that can be used to pay off the debt if you died? (this cover can't be assigned against debt).
With the rearrangement in debt, does your existing cover still cover the outstanding debt today?


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

 

[Brendan Burgess]

Hi JD

Don't worry about it.

The main risk you were running was the high level of arrears and potentially being forced to sell your home. You appear to have resolved this now.

The Mortgage Protection policy is separate from the mortgage and the level of cover usually assumes a gradually reducing mortgage balance.

For example, if your initial mortgage was €200k, they might expect you to owe €100k after 20 years and so the cover would today be €100k. But if you restructured your mortgage, the balance today is probably €120k, so if you kick the bucket today, your estate will have to clear a mortgage shortfall of €20k.

If you have compromised health, then there is nothing you can realistically do about it. If you come into money, you can pay a lump sum off the mortgage and get back to where you should have been.

The owner of the mortgage is taking very little risk. There will be a shortfall of €20k if you die, but your Executor will not be able to pass on the house until he has cleared it.

Brendan

 

[JD2021]

Hi JD

Don't worry about it.

The main risk you were running was the high level of arrears and potentially being forced to sell your home. You appear to have resolved this now.

The Mortgage Protection policy is separate from the mortgage and the level of cover usually assumes a gradually reducing mortgage balance.

For example, if your initial mortgage was €200k, they might expect you to owe €100k after 20 years and so the cover would today be €100k. But if you restructured your mortgage, the balance today is probably €120k, so if you kick the bucket today, your estate will have to clear a mortgage shortfall of €20k.

If you have compromised health, then there is nothing you can realistically do about it. If you come into money, you can pay a lump sum off the mortgage and get back to where you should have been.

The owner of the mortgage is taking very little risk. There will be a shortfall of €20k if you die, but your Executor will not be able to pass on the house until he has cleared it.

Brendan

Brendan thank for that (apologies for that other THING, I am an AAM novice) but I've made great progress and I thank you again and those who offered kind support and advice.

I made a quick initial enquiry with the life company and they've advise I can't extend it. I think your right about not over worrying, just something that propped up during the process.

The amounts involved won't be substantial anyway, I suppose my illness whilst not life threatening does limit my abilities to earn full income. And yes, even I might have a bit of luck re windfall.

I'm just amazed the issue was never even considered or mentioned when split was done and the Vulture fund oddly have never queried the insurance aspect, even my home insurance.

So, I'll take on board your advice and thanks again.

Just I suppose anyone doing a split arrangement should be aware of

Regards JD

 

[JD2021]

As part of the arrangement they should have ensured that your mortgage protection covers the full term of the new arrangement and is not short. Usually they ask for two refusal letters from two insurers and that's it but it doesn't look like they have got that far. It looks like you are just going to have to run the risk of not dying in the uninsured period and your family being able to meet the repayments if the unfortunate does happen.

Do you have life cover in work that can be used to pay off the debt if you died? (this cover can't be assigned against debt).
With the rearrangement in debt, does your existing cover still cover the outstanding debt today?


Steven

 

[JD2021]

Stephen, apologies, tried to direct respond but error showing up, spam content, not sure what that's about so...

Thank you Steven,

Honestly the matter of insurance, mortgage protection was never raised at the time the arrangement was made. Long story on my other thread but I wasn't actually aware I was extending maturity dates, this was my error in not fully checking. The issue only became apparent during a process to address an arrears challenge I had.

Unfortunately I've no other life insurance and as explained my age an an illness would mean a very high premium albeit for a small sum to be insured.

I've checked and can't extend existing policy, but I've a few years left of cover so something to possibly look at down the road. I'm single with no dependents so a Brendan mentioned in a worse case scenario any shortfall can be cleared from estate, sounds very grim, but you get my drift.

Thanks for the response and I hope others considering a split might find my query useful. Regards, JD