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‘For dream home, take mortgage insurance’

By on March 27, 2011

A major means by which many realise their dream homes is effective mortgage system. NIKE POPOOLA analyses how a mortgage insurance policy can help people to build their houses

Often times, not many who dream of having their own houses accomplish the mission.

Despite their investment in the homeownership venture, they are usually hindered by a number of challenges.

While some are unable to complete their buildings due to inability to get the required capital, some breadwinners suffer untimely death and their dependants are unable to complete or maintain the buildings after them.

For this reason, the houses inherited are eventually sold, left uncompleted or confiscated by the lenders and family members are ejected in order to settle the outstanding debt.

But insurance experts say many do not have to worry on how to get their own houses and maintain them thereafter. The strategy, they say, lie in the use of mortgage insurance.

Interestingly, it is becoming increasingly common to see many average citizens in other climes using this method now living in their own houses.

It is also interesting to know that these house owners do not always have the complete cash to get their dream houses but they adopt the principles of how mortgage insurance policies work.

Experts insist that a good knowledge of mortgage policies can help people live in their dream homes.

As part of efforts to develop the economy and empower individuals in the financial system, banks and other lending institutions offer loans to borrowers but usually not without collateral.

A major trend, which has significantly grown of recent, in the banking sector’s effort to minimise the exposure of its lending risks to the public, is the increasing demand for insurance cover as a major collateral for loans.

This is because the lending institutions will always make efforts to recoup their money if things go well with the borrower or not.

For this reason, they have often ejected family members of a deceased debtor, who did not totally repay the loan collected to acquire his house.

To the lending institutions, they must get back their money because they are not charity organisations.

It is worthy of note that mortgage insurance helps to secure the property for the dependants of the deceased because their insurance company will step in to take the outstanding liability so that their dependants can still continue to live in the houses if anything happens.

The Managing Director, FBN Life Assurance Limited, Mr. Val Ojuma, explains the relevance of getting a life insurance cover when a man takes a mortgage loan to acquire a property.

He observed that most people in the financial economies of the world usually embraced mortgage policies to acquire assets because they could hardly have the cash to buy such properties outright.

Ojumah said, “It is very rare to find people, who have bulk money to build a house or own a home. If a person has to wait till he has the full money, he may not be able to get his house on time or get it at all.”

He also observed that the practice of taking mortgage was rising in Nigeria because many middle class people were taking loans to buy homes, which they would not have been able to do without the loans.

Ojumah explained that if a man took a mortgage loan and anything happened to him before the loan was paid in full, the lending institution would either foreclose or take over the property.

For this reason, he said that a borrower should know the essence of having a mortgage insurance policy.

While stressing the relevance of mortgage insurance to a breadwinner, he said that it would enable dependants of the breadwinner to still own the house if anything happens to the breadwinner.

According to him, the purpose of the mortgage insurance is to pay the outstanding loan, which has been taken for the building.

The Managing Director, African Alliance Insurance Plc, Mr. Alphonse Okpor, said that the mortgage insurance policy was designed for any borrower who had purchased or built a house by means of a mortgage.

Okpor explained, “In the event of premature death before the mortgage is fully repaid, the mortgage policy ensures that one’s family is left with the house free of any financial distress.”

According to him, a mortgage insurance policy is a life assurance policy that provides compensation when a death occurs.

The Group Managing Director, Capital Express Assurance Limited, Mr. Tony Aletor, also emphasised the relevance of the mortgage insurance policy, stressing that to realise a person’s dream house, knowledge of the mortgage insurance could be useful to him.

A mortgage assurance plan, he said, would protect the interest of the borrower in a mortgaged property.

Aletor explained that the mortgage insurance would guarantee that the dependants of the borrower would not suffer ejection or forced sale of the property by paying off the loan balance upon the death of the policyholder.

By this, he said, that the mortgage assurance would help to keep the family in the home, no matter what might happen.

The Capital Express Assurance boss explained the key features of the mortgage assurance plan.

According to him, if a person borrows money to build or buy a house and lives in it with his family, if he dies before he repays the full sum borrowed; his insurance company will repay the outstanding loan to the lender or mortgage institution.

By this, Aletor explained that the dependants would not be thrown out of their homes or become homeless as they would not repay the outstanding loan to the banks again.

He, however, said that when a person had a mortgage insurance policy, he would need to be paying his premium regularly.

According to him, the borrower can decide to pay the premium either monthly, quarterly, annually or according to his convenience.

This policy, he explained, usually had a minimum age requirement to purchase it.

While explaining other benefits of this policy, he said that the plan could be used to reduce credit exposure due to premature death, while also providing the stakeholders peace of mind.

According to Aletor, this mortgage policy has a tax free premium and other insurance benefits, which include the waiver of premium benefit, permanent disability benefit and critical illness.

Source : Punch