A study of the Central Bank’s most recent quarterly arrears report, which looked at the growing arrears on the 100,000+ Irish homeowners in difficulty, has found that many of these families are also significantly under-insured as a result. This is because when the mortgage repayments fall behind, not only do homeowners fall into arrears, but their Mortgage Protection cover also becomes insufficient.
These homeowners will inevitably find that a substantial proportion of their mortgage debt will remain outstanding should either party die unexpectedly and the mortgage policy pays out. This may come as a shock to a surviving spouse or partner at a time when they can least afford it, as the standard Mortgage Protection policy used in Ireland simply doesn’t allow for arrears, particularly at the current scale.
When homeowners take out a mortgage they also take out a Life Cover policy (known as Mortgage Protection) for the same amount. The Life Cover reduces steadily as in the normal course of events; the outstanding mortgage balance is expected to fall as the loan is being repaid. However, analysis would suggest, that homeowners in arrears of more than 2 years could find that they are under-insured by up to 17% of their mortgage or an average of €36,000 on a typical outstanding mortgage of €173,000. These figures reflect the growing arrears balances of these mortgages.
The under-insurance issue is less severe for those whose mortgages are “only” 6 to 12 months in arrears at a typical average of €10,000. For those in arrears of between 12 and 24 months the under-insurance is about €18,000.
The numbers indicate the average level of arrears and consequently the Mortgage Protection under-insurance across those home loans in difficulty.
Those in mortgage arrears should contact their Financial Broker and assess the gap between the level of cover and their total outstanding mortgage debt and if at all possible, increase it by the difference.
Thankfully, the cost of Life cover is at a decade long low.