ONLINE MORTGAGE PROTECTION INSURANCE

Mortgage insurance

Mortgage borrowers all over the country greeted the decision to leave interest rates unchanged with relief this week. The Bank of England's decision on Thursday came after early speculation that borrowers would face an unwelcome rate rise.

But relief should not be an excuse for complacency among homeowners. The base rate may have held at 4.75 per cent, but it may be time to use this respite as a spur to take another look at your monthly mortgage repayments.

The homeowners who should subject their outgoings to the closest scrutiny are those who are paying for mortgage insurance.

These mortgage insurance policies, which are designed to cover you mortgage repayments if you are made redundant or lose your job through ill-health, have been criticised by consumer groups for being expensive and often mis-sold.

Mortgage insurance usually requires borrowers to pay a fixed rate for every £100 of mortgage payments made, ranging from £3.50 to £7.

Most mortgage insurance policies pay out for a year after you claim, although some last for two years. But is mortgage insurance worth the price? Ask yourself if it is really worth taking out mortgage insurance cover against the threat of redundancy. A twenty-something office worker in London will have less need for mortgage insurance than a middle-aged worker in a small town where one company provides most of the employment.

Mortgage insurance is notorious for being loaded with exclusions: part-time employees or those working on short-term contracts are at particular risk of being excluded. If you are dismissed from your job, most mortgage insurance policies will not pay out.

IMD, a specialist mortgage insurance policy provider, is one of the few to pay out if you are fired, and it offers competitively priced cover at £4.95 per £100 of mortgage payments.

Richard Lowe, of Savills Private Finance, the mortgage broker, says that self-employed workers are often discriminated against. "A lot of companies that sell mortgage insurance will pay out to self-employed people only if the company is officially wound up by the creditors. People who hold mortgage insurance policies are required to show documentary evidence of legal proceedings, which does not happen in many cases, before being eligible for a payout," he says.

You will not be able to make a claim on most mortgage payment protection policies until you have signed up to cover for more than 30 days. Royal Bank of Scotland's £5.45 deal requires people who hold mortgage insurance to make two months of payments before the mortgage insurance starts. Burgesses, a mortgage insurance broker, have no exclusion period and are also the best-priced deal at £3.95 for every £100 of cover.

Unless you own a reliable crystal ball, it will be impossible to know the likelihood of being struck down by an accident or debilitating illness.

Make sure that you check the healthcare benefits offered by your employer and check that the mortgage insurance does not over-lap with any other insurance policies you hold, such as critical illness cover. Anyone with a pre-existing medical condition should take a careful look at the mortgage insurance policy's small print for exclusions.

Ray Boulger, of Charcol, the mortgage broker, says that borrowers in unique circumstances, such as the self-employed, should consider buying permanent health insurance instead of mortgage insurance. Mr Boulger says: "Unlike mortgage insurance, which usually pays out for one year only, permanent health insurance provides cover until retirement.

For example, a 30-year-old will receive more than 30 years of cover. You can also obtain an extra 25 per cent of protection for other household expenses, such as council tax and utility bills, in the event of redundancy."

A do-it- yourself way to protection against the worst is to make overpayments on a flexible mortgage that allows payment holidays. Leeds & Holbeck Building Society and Halifax allow customers to take a break of up to six months from their repayments.