Covering mortgages with insurance

Jul 18th, 2008 | By Hot News Reporter | Category: Insurance Today

Q: I have a three-year employment contract and have just secured my first mortgage for a new villa in Dubai. However should the contract not be renewed how would I manage to make my mortgage payments till I find another suitable position? 

A: Payments towards a mortgage are usually the highest expenditure from your salary each month – mortgage payments are your most important payment as everyone needs somewhere to live.

As you are on a fixed term contract with no guaranteed work following that, you should consider an insurance policy to protect you for any unforeseen circumstances which would mean you may not be able to make regular payments.

There are two types of debts – unsecured and secured debts. The essential difference between unsecured and secured debts is that with unsecured debts there is no physical property or product directly attached to the debt, and thus the interest rate is higher due to the greater risk to the lender. Familiar examples of unsecured debts include personal loans and credit card bills.

Your mortgage is a secured debt. That means that your villa can be repossessed if you fail to make regular payments.

Housing and car loans fall under the category for secured debts which means that the house doesn’t become yours till all the mortgage payments have been made and it could ultimately be taken off you by your lender if you miss payments.

You must always prepare for the possibility of unexpectedly missing out on payments due to unforeseen circumstances – savings may not be enough to assist in making mortgage payments if you are suddenly unemployed.

There have been many instances where property was retained by the owner due to mortgage payment insurance covers.

As the UAE mortgage market matures, local and international insurance firms are beginning to offer several types of mortgage payment protection schemes, and according to recent data, 71 per cent of first-time buyers in the UAE are now opting to use mortgages to finance their property purchase.

Such schemes offer short-term coverage of mortgage payments when you are unexpectedly out of employment. The benefits also include assistance when home owners have been displaced due to sudden illness or an unfortunate accident.

It is important to understand that mortgage payment protection does not cover the entire repayment of your mortgage loan.

The length of the mortgage payment insurance depends on the plan you’ve signed up for – the usual short-term period for payment support extends from 12 to 24 months.

You can find different mortgage payment insurance packages from your mortgage company or through insurance institutions that offer this category of insurance cover.

These packages can differ based on the duration of the assistance period, terms of applicability and the cover of other mortgage-related payments such as premiums for endowment policies and household insurance.

Since it is the first time you are looking for mortgage protection, it is always advisable to visit an independent financial advisor who can discuss with you the different insurance plans available and help you recognise what scheme would suit your needs best.

You will also need to be advised on when your mortgage cover is applicable and decide the duration for your payment assistance period.

Michael Walton is a Director of General Insurance at Nexus, the region’s leading financial advisor. The opinions expressed above are the writer’s and don’t necessarily represent the views of Gulf News.
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