A mortgage is deemed to be a very difficult loan to handle, post the economic recession years. A problem that the entire credit industry suffered from, was, the lack of installment payments. During the recession due to loss of jobs, people were unable to make timely installments to the mortgage payments.
This resulted into many foreclosures and in certain cases, bankruptcies during the time course of the economic bubble. The drawback was that loss of installments was a loss to the lenders, not to mention people losing their homes and damaging their credit report. A plan for mortgage protection is probably the best solution to avoid chaotic installments and ultimate forecloses.
The plan for mortgage protection is at times also known as mortgage protection insurance, payment protection insurance, credit protection insurance, loan repayment insurance, etc.
About Mortgage Protection Plan
Like any insurance plan, a mortgage payment protection plan is meant to secure and safeguard the financial interests of the policy holder, who in this case, is the mortgage borrower. The working of this type of policy is slightly different from other types of insurance policies.
The basic interest that this policy safeguards is the payment of installments to a mortgage loan. In many cases, it so happens that the borrower of a mortgage is unable to make a timely payment of installments. Due to some unforeseen reasons such a sickness, divorce, death or disaster, the borrower is not able to make a payment. In cases where the borrower is also a holder of protection plan, the insurance company pays the mortgage installment on the borrower's behalf.
So how does a mortgage insurance protection plan work to make mortgage payments? Well, the explanation is quite simple and straightforward. A person who has borrowed a mortgage can apply for such a policy. The person purchases the plan or rather the policy for a specified consideration. Then the policy holder has to make premium payments to the insurance company.
One single payment usually amounts to about 1% to 5% of the total mortgage amount that is to be insured. The policy has a specified period for maturity, which is usually equivalent to the number of years for which the policy lasts. Upon maturity, the holder of the policy starts receiving the returns for the policy. The returns, in maximum cases, are diminishing in nature.
What to Look for?
If you are searching for a good plan for mortgage protection, then here are a few things that you must be looking out for.
- The first thing that you must look out for is the amount of premium that is payable to the insurance company, monthly or annually. The basic thing that you must calculate here is whether you will be able to easily pay the premium.
- The next thing that you must check out is the coverage of the policy. There are many minor details regarding the coverage that are included on the quote of the policy. Some policies cover almost all missed payments. Some of them cover missed payments as a result of medical emergencies. On the other hand, there are also policies such as the mortgage protection life insurance, where the installments are payable upon the death of the policy holder.
- Lastly, check the returns of the policy. In many cases, they will come in after a long period of time, but will be certainly satisfactory.
Remember that there are many companies that will offer you a protection plan, yet no such plan is bound to be perfect. You will have to calculate and choose the best one that comes by your way.