You and Your Money by Ademiniyi Adelekun
For many homeowners, an important area of financial expenditure is their mortgage repayment. Yet anecdotal evidence reveals that most people do not know what exactly they are paying for.
This lack of understanding is due to the fact that they did not take the time to fully understand what different policies constitute the mortgage package they applied for. This is probably because most mortgage holders are so excited by the prospect of owning their own homes that they overlook the important task of reading the fine print to know what they are buying into. At the same time, they likely make one single payment each month – so they’re just paying for one thing, right? Wrong.
The average mortgage package will most times contain at least three different policies or products. There will be the main mortgage component – that is, the loan on the house.
Separate to that would be the mortgage protection plan, which is an insurance policy to pay off the mortgage in the event of death during the term of the mortgage. Then there is the insurance policy on the home itself.
All three of these components are usually required to be taken out by the mortgage holder before a lender would approve the mortgage.
The mortgage package may also contain a mortgage payment protection plan, another insurance product designed to help keep up with your repayments should you lose income during the term of the mortgage. An additional possible component is home contents insurance, which this covers the loss associated with the theft and/or destruction of property in the home.
All the different components of a mortgage package have their own cost, so it is therefore important to ensure that mortgage holders fully understand what they are buying and paying for.
These components should be separated and reviewed to ensure they are needed by the mortgage holder in the first place. You might then decide to switch your mortgage and the separate components to different financial products providers to get the best deal on each, which could lead to a huge saving.
So to ensure you are not overpaying for a non-competitive mortgage package, reviewing your mortgage often should be a priority.
Ademiniyi ‘Niyi’ Adelekun is the principal at Alpha Royal Financial Services in Galway
niyi@alpharoyalgroup.com
This article is a general description of situations and circumstances. Please consult a financial adviser for personal advice that would take your specific circumstances into consideration
