Mortgage & House insurance

That's true, but as we've seen with life insurance the market can persuade lenders to change their practices. However, in this case it may be that there is no demand, even owning a house outright most people would probably still have insurance.

Even current account mortgages still have a borrowing limit. The house price is of course an issue anyway, but in practice lenders take a view (with MIG thresholds etc) of how much prices might fall.

My point is that if the borrower keeps making the mortgage payments it makes no difference to the lender if the house falls into a black hole, marketability doesn't come into it if there is no cause to reposess. Rain^H^H^Honald was suggesting that b/socs don't want to reposess if they can at all avoid it, but that's true whether the house is still standing or not.

Well, OK, it *was* used for life insurance, but lenders were eventually persuaded otherwise. I suspect that most mortgage advisors still try to sell people life cover though ...

Well indeed, so the lenders shouldn't really worry about salary multiples at all given that it doesn't affect the security ...

I was thinking of life insurance there (and things like unemployment insurance which they will probably also try to sell you if you let them). I accept that it's reasonable to require insurance to cover losses which would impact the value of their security.

In message , Stephen Burke writes

No, only a pawnbroker would react like that, because a pawnbroker performs no special lending assessment, they just lend against security. Banks and other mortgage lenders make the lending assessment based on various criteria of which 'security' is just one. An unsecured loan, for example, has no security yet income is a major assessment criteria.

In message , Stephen Burke writes

I take your point, and a disaster happening to the security is not a ground for repossession. However, as it is impossible at the outset to know what the borrowers circs and the actual values of the security will be at some future time, post disaster, it is appropriate for the lender to insist on buildings insurance.

Well your suspicions cant be based on your own experience! :-)

Criteri*on*. I spotted that even though I'm still deciding which half of my specs to look at the screen through. Collected yesterday.

Ok, you'll need to hold your head up to read this, but the word 'criteria' isnt incorrect. What I should have done is to insert the words 'part of the'.

How about the customer? Doesn't their needs come into it?

Most people who have a mortgage want life cover, to protect their family/spouse in the event of death.

Same for Unemployment cover. many people who have it don't need to claim on it, but a lot do.

Not in the context of this discussion which was centring around what a lender can reasonably insist on for security.

Yes, but this is a matter for the adviser/customer, not a matter of compulsion by the mortgagee.

Totally agree, the point is valid in the context of the original post. But as it continued sounded like Stephen was inferring people taking life cover were wrong...

In message , Phil Deane writes

Fair comment.

I think you mean "one of the" ...

What I was actually implying (not inferring) was that salespeople will try to push products whether people need them or not.

Of course, but those needs don't necessarily include insurance.

That assumes that most people with mortgages have a family and/or a non-working spouse, which is far from obvious. There are also plenty of people who have life insurance policies already, or have death benefits from their employer. Also if you do need to cover the mortgage the level of cover should decrease as the mortgage is paid off, but I suspect quite a few people are sold a flat amount.

And some of those who do find that it isn't a lot of use and they'd have done better to save the premiums.

True enough, but I'd say that even if the spouse isn't non-working, this doesn't appreciably reduce the need for insurance, since the family will have been operating within certain budgeting parameters, and household income need not drop by a full 100% to have a serious impact on the budget balance. Also, let it not be forgotten that even if the non-earning spouse dies, this will create a budget imbalance as a nanny/housekeeper would need to be hired in order to make sure the work the "non-working" spouse did continues to get done.

I've never understood how decreasing level cover is costed, since this would seem to require a crystal ball which reveals future interest rates. The higher the loan interest rate, the slower the balance is paid off, and hence the higher the payout will have to be in the event of a future claim. Since interest rates change all the time, but no-one can reliably predict when they might change rapidly, there must be a lot of scope for payouts to be significantly higher or lower than anticipated.

"Ronald Raygun" wrote

I saw a policy fairly recently (last year) which stated that the DTA payout would be in line with a mortgage balance based on 12%pa interest into the future. Of course, the mortgage interest rate being charged was actually much less than half of that rate ...

"Ronald Raygun" wrote

... hence, unless mortgage interest rates rise to over 12%, the payout on the DTA described above should be significantly *higher* than required (if death ocurrs prior to end of term).

Oh, so the actual payout is not restricted to the actual loan balance? This provides an incentive for murder, doesn't it? It means you can kill your husband, have the mortgage paid off, and make a profit on top! Marvellous. Now if anybody would like help in calculating the optimum timing for such a project, do get in touch. My up front consultancy fee shall be 10% of the payout.

Basic fee includes free 12 month guarantee of anonymity. Extensions negotiable.

Incidentally, under these circumstances I can't see decreasing cover premiums being massively cheaper than for level cover.

Decreasing term assurance doesn't pay out the then mortgage balance, it pays out according to a pre-arranged profile. So at point of claim it pays out a set amount of dosh which is unlikely to equate to the mortgage balance outstanding. At the quotation stage the adviser SHOULD input a rate of interest which is intended to be the maximum rate likely to exist during the term of the mortgage, sadly many advisers, not understanding this, put in the actual interest charged at the outset which can be ridiculously small, such as .5%. If there is a claim there will almost certainly be a shortfall. The difference between a 4% quote and an 8% isn't all that much.

Norwich Union used to print a table of the profile at annual intervals in their policies.

In message , Ronald Raygun writes

Not needed, it'll be about year 16 (out of 25).