Questions about Life Assurance / Mortgage Protection - Keeping our options open

[birdie]

Hi all,

My partner and I are in the process of buying our first house. We have received the loan offer for the mortgage from AIB, and at the moment we are trying to get our Life Assurance policy in place.

We are happy to go with a straightforward Mortgage Protection (reducing) policy except that in order to take advantage of offers from AIB for Interest Only repayment periods they require a Level Term policy, which is significantly more expensive over the full term of the mortgage (32 years).

I have been getting quotes for Level Term Insurance and they all seem to be around the €950 per year mark, but I have received one discounted quote for €300 for the first year. That is a good price for the first year, but after that it goes back up to the normal level, which is more than we'd want to pay, when essentially all we want to do is keep our options open to free up cash while we are doing work on the house (it's a bit of a wreck!).

The other issue is that if we switch to Mortgage Protection next year, we'll be a year older and the costs go up by approx. €20 per month - over the term of the mortgage it adds up to an extra €7400.

What I'd like to know is if it is possible to have two policies running concurrently on the same mortgage? Then we could have the Mortgage Protection set at the current rates for the term of the mortgage, but also have a separate Level Term in place for the first year and use the Interest Only option, essentially paying €300 for the Interest Only Payment "loan". We'd cancel the Level Term policy at the end of the first year, but wouldn't have to get a new policy because the Mortgage Protection would already be in place.

What would be your advice in this situation? My partner thinks we're better off if we just get Mortgage Protection, and let the Interest Only option go, but I think we'll probably need to free up the cash - there is a ton of work to be paid for.

...or am I being stupid? That is a distinct possibility, it wouldn't be the first time.

Cheers, any advice appreciated!

 

[Sumatra]

Why don't you consider purchasing a mortgage protection policy where the initial sum assured has been increased to take into account of the fact that your mortgage is interest only for the first few years. People usually take a loan which is a repayment type but a few are offered repayment loans that are interest only for the first year or two or more. Ask your bank to factor this into a quote for a mortgage protection. It will be cheaper than a level policy over 32 years. Disadvantage - it won't be flexible enough for you to say go another year interest only if you feel like it a year or two down the line. At the end of the day surely the price of the policy shouldn't dictate the type of loan you take out. It just doesn't sound cost effective.

 

[Jimbobp]

I would be very careful going for an interest only option on your own property. You say that it will only be for a year and only until you have the house decorated etc. In reality I have seen people hold on to these type of rates a lot longer than they should, with the result being when it does change to a variable rate, their is a massive financial shock that hadn't really been allowed for. Also, do you know where the rate will go at the end of the I/O period? Will it flip on to a standard variable? If so what will the rate be? The bank will decide that, not the ECB and not you. Basically, IMO if you cannot afford the mortgage on a standard variable or fixed rate with a half decent life policy, then you cannot afford the mortgage full stop and the bank or any lender that is offering IO to someone who is buying their own house is not doing their customer any favour.


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