Homeowners guide: Understanding what lenders require for your mortgage

Buying a home is a big deal. It's exciting, overwhelming, and a bit scary. But most of all, it's a huge financial commitment that takes planning, saving, and a lot of paperwork.

One piece of that paperwork puzzle is life insurance. Let's explore some of the top reasons a life insurance policy should be on your radar when getting a mortgage.

Searching for your dream home?

Life insurance is the last thing on your mind when looking for a house. But should it be on your radar, and do lenders require it?

Some lenders might ask you to have a life insurance policy before they'll give you a mortgage. It's a safety net for them. But it’s not a legal requirement.

Why is mortgage protection so important?

No one likes to think about what happens when we're not around anymore. But let's face it, leaving a massive debt like a mortgage can be tough on the people you care about. Life insurance wipes out that worry.

If something were to happen to you, the insurance can take care of the mortgage, and your family can keep living in your home without fearing it being resold.

What lenders require

Whether it’s your first home, second, or even if you own a property empire, there’s a boatload of things to do when getting a mortgage. Here are just a few things that lenders require:

• Credit score: A high credit score indicates that you're a responsible borrower, reducing the risk for lenders. Your credit history can determine your eligibility for a mortgage, your mortgage interest rate, and other terms of your loan.
  
  
• Employment history and current income: Stable employment and a steady income show that you're likely to meet your monthly mortgage payments.
  
  
• Deposit: Typically, a higher down payment can increase your chances of securing a mortgage, and reduce your monthly payments.
  
  
• Appraisal: Lenders must verify the market value of the property you plan to buy to ensure it covers the loan amount.

Life insurance for couples

Like many people looking to get a foot on the property ladder, you might be thinking of getting a house with your other half. If this is the case, you should seriously be considering life insurance.

Here's why: your mortgage repayments are likely based on both of your incomes. If one of you were to pass away, it could be challenging for the other to keep up with the payments. Your life insurance can step in here and save the day, ensuring your partner isn't left in a lurch.

What can mortgage protection do?

Mortgage protection is a type of life insurance specifically designed to pay off your mortgage if something unexpected happens to you.

Think of it as a security blanket for your mortgage. If you're unable to make your mortgage payments due to a serious illness, disability, or even death, your mortgage protection policy can step up to the plate.

So, how does it work?

It's pretty simple.

The tax-free lump sum that your policy could pay out can help pay off the remaining balance of your mortgage. This money is there to ensure your loved ones aren't left with the financial burden of continuing to make mortgage payments after you’re gone.

What type of mortgage do you have?

If you have a repayment mortgage, the type of cover you’ll need is a decreasing term life insurance policy, as it aligns with the amount of money you’ll have left to pay on your loan and will reduce over time. A decreasing life insurance policy will often be cheaper than other types of cover, due to the nature of the policy.

Whereas if you have an interest-only mortgage, you’ll need a level term life mortgage insurance policy, as the pay-out you can receive from this cover will remain the same throughout the duration of your policy term.

Mortgage protection myth-buster

Myth: If you have a life insurance policy, you don't need mortgage protection insurance.

Fact: While your life insurance policy can provide financial support for your loved ones when you’re no longer here, it might not cover the remaining balance on your mortgage. Mortgage protection insurance ensures explicitly your mortgage gets paid off, reducing financial burden on your family.

Myth: Mortgage protection is expensive.

Fact: Your life insurance policy is based on your own unique medical history, and lifestyle disclosures which means that each policy is entirely unique to its owner, as it’s based on your own personal details.

Myth: You shouldn’t get life insurance when you’re younger.

Fact: Life insurance isn’t just for those who have a house, kids, and are married, it’s for everyone. Plus, the older you get, the higher your premiums are likely to be. So by securing your price when you’re younger, you’ll pay a cheaper premium for the duration of your policy. For example, by securing your price at the age of 32, it could cost you just £11.21 a month to get £200,000 of cover.

Your compass in the life insurance maze

Life insurance and mortgages can be tricky, and it’s hard to know which policy is right for you - it's like trying to do a jigsaw puzzle sometimes. You're on the hunt for that perfect piece that slips effortlessly into your life, and at a cost that doesn't stretch your wallet.

The market is bustling with so many different providers, each touting deals left, right, and centre. It may seem daunting, but don't fret. The secret sauce lies in comparison, and that's where the help of a brokerage, like us, comes in handy.

As a brokerage, we do all the heavy lifting for you. We can sift through the wide range of policies that are available and match you with the one that fits your needs like a glove. Want to find the cover that's right for you? Well, Caspian is your compass, there to help you through the confusing maze of life insurance options.

Did you know you can calculate your costs?

We have our very own life insurance calculator.

This handy little tool means that you’re able to find out an estimate of how much your policy could cost, in just 3 simple steps. Our calculator can help you find out the difference in price between a level term mortgage insurance policy, and a decreasing term insurance policy.

In a nutshell

To wrap things up, whilst life insurance may not be a mandatory tick on your mortgage application, it's unquestionably a smart move. It can offer you peace of mind, and protection for your loved ones.

So, when you're mapping out your path to homeownership, remember to include life insurance in your blueprint. By choosing Busy Bee to help you with your life insurance, you’ll have help to find the right cover for you.