What if I fall sick or lose my job?
Most of us like to have back-up plans and insurances to cover unforeseen emergencies. Covering mortgage repayments in the event of a job loss or illness is no exception.
Declining interest rate markets
When interest rates go down, one very good option is to continue doing what you are already trained to do – do not reduce your mortgage repayment amount. Keep paying off the same amount you were when interest rates were higher. You won’t miss the money and this action will systematically increase your mortgage equity.
Use an offset account
100% offset accounts are fantastic as they build a savings fund that can cover you in emergencies while at the same time help to reduce the interest expense on your home loan.
Every dollar in your offset account works to reduce your outstanding mortgage. Pay your salary into your offset account and instead of spending the extra money you have when interest rates fall, save it to your offset account. This way, not only do you create an equity buffer, these funds are readily available to draw on should you need to.
Mortgage protection insurance
Mortgage protection insurance is an excellent option to insure your mortgage if you were to be diagnosed with any one of a range of nominated life threatening conditions like cancer, heart attack, stroke, heart bypass surgery, paralysis etc. It is also often bundled with term/life cover and is designed to pay the medical bills associated with a major illness, pay out a home mortgage, or allow the injured person to work part-time until retirement.
Mortgage protection insurance is relatively inexpensive and easy to get.
Income protection insurance
Income protection insurance is also worth considering. It can pay a proportion of your salary for a while if you’re temporarily unable to work because of sickness or injury. The length of time you receive payments depends on the contract term and the amount of cover you are willing to pay for (the salary you want to insure).
Generally income protection provides cover for about 75% of your salary in the event of illness or injury preventing you from working.
If you do lose your job unexpectedly
If you do lose your job and have no buffer to fall back on, be up front about the situation with your lender.
Talk to them and find out what your options are. You may be able to rearrange your home loan structure. There are also different special hardship arrangements that can be made including the deferral of your home loan repayments for up to twelve months.
These arrangements do not forgive your loan and the downside is unfortunately once the twelve months are up you will need to repay all the arrears. But bear in mind that it is in your lender’s best interest for you to keep your mortgage and your home, so talk to your mortgage broker about the options available to you.
