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Old 12-11-2009, 03:06 PM
166 posts, read 689,782 times
Reputation: 97


Not sure if this is the right forum to ask the question OR if I am calling it the right thing - we just bought a house and are getting a lot of calls/mail about buying mortgage protection - basically, if one of us dies, then the mortgage gets paid off. My question - is it worth it? If we owe 340K on the house, I am wondering what the payment would be like? Does anyone have it? Any feedback/opinions would be much appreciated.


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Old 12-11-2009, 03:50 PM
28,384 posts, read 67,998,510 times
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The primary way that a "mortgage protection" policy differs from a standard term life policy is that since your mortgage balance is constantly decreasing (and a varying pace, which I will clarify later) most such polices are set up to decline in coverage but remain fixed in cost. That can a very bad deal that is easy to "forget about".

The $340K you owe right now will decrease very slowly at first, as your are mostly paying interest. Over time the portion of principle will increase. Some time in 30 years (if you stay put) you will make you last payment. If you were to pass away right before that last payment the insurance would "cover it" but odds are your survivors would also have been able to cover one payment with no problem. OTOH if you passed away tomorrow and the insurance paid off the loan your heirs would have the house free and clear and you would have paid only a tiny bit in premiums.

It is therefore VERY hard to calculate the cost of such coverage, and can also be hard to compare to fixed payout term life (which is pretty easy to shop for online ...).

Most people would feel better having a known payout that would replace the income of the deceased to a known degree. If your heirs decide to use the pay out to pay off the house or use it for any other purpose you would have provided for them regardless of what your "owe the lender".

I would encourage you to think about the value you would get from this policy if you sell the house in 7 years, 15 years, et cetera. Odds are you could lock in a term policy that addresses the specific needs you might have that is more cost effective than tacking payments in tied to your mortgage...
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Old 12-11-2009, 04:25 PM
166 posts, read 689,782 times
Reputation: 97

I know you have heard this before, but, this is a great post, with great pointers. You gave me many thoughts to mull over...
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