Buying your first house is an exciting time, and entering your home after completing the purchase is a proud moment. If you’re planning to make that jump next year, then 2017 is sure to be a year etched in your mind for the rest of your life.

It can also feel scary, though. Most homebuyers need to take out a large mortgage and this is probably the largest debt that the household has.

The worst-case scenario

Everything will be fine if the borrower’s income comes in regularly and the monthly mortgage payments are made on time. Unfortunately, job security no longer exists for most workers and, through no fault of your own, you could find yourself out of work and unable to keep up with the mortgage payments. The worst-case scenario is that you fall so far behind with payments that your home is repossessed, turning your dream of owning your own home into a nightmare.

The solution

Not many people have enough savings to cover the mortgage payments for more than a few months. If this prospect troubles you, there is a straightforward solution. Taking out mortgage insurance provides you with the peace of mind, knowing that if you lose your job through illness or an accident, the insurance policy will pay your mortgage.

You can also take out additional cover that pays out in case of redundancy. If your employer has a generous redundancy package, you may not need this added cover.

Types of insurance

There are several types of insurance products available.

Mortgage protection insurance is designed to cover for short-term illness or injury. The policy will usually pay out for up to a year, but most people go back to work sooner than that. There is usually a wait of between 30 to 60 days before payments start, so it will still likely be necessary to have some savings to cover the mortgage during the waiting period.

Income protection insurance provides a payout based on a fixed percentage of your income if you are out of work. The money paid out is not tied to your mortgage, but can be used for mortgage repayments. There is also income protection insurance cover available for the self-employed.

As well as being able to keep up with the mortgage payments if you lose your job, it is also advisable to take out life insurance to cover the mortgage if the borrower dies. Many mortgages payments are reliant on two incomes and can be unaffordable if one partner passes away. A life insurance policy can pay off the mortgage, freeing your dependants from the financial burden of the mortgage.

The cost

Insurance to protect your mortgage need not be expensive. The insurance premium amount is based on the type and level of cover. A broker usually has access to the most competitive insurance products.

Where to get advice

For general advice about your finances, consult an independent financial adviser. If you are ready to purchase mortgage insurance, speak to Ascot Mortgages. As a broker, we have access to a wide range of insurance products that can protect your mortgage. We specialise in matching the right insurance product to suit our client’s individual situation.