Mortgage installment insurance is known under a few different names. Some companies refer to it as mortgage life insurance, while others refer to mortgage disability insurance. Either way consumers should consider what will happen to their families if something should happened to them which would prevent them from making the monthly installment payments on their mortgage. Would they have to sell the house? Would they have to move? How would they afford to make all of the payments? These questions are hard to answer unless you have an emergency plan to deal with a disability or worse a death in the family which jeopardizes the mortgage installment payments.

Mortgage life insurance and mortgage disability insurance are actually two different products offered by most financial institutions. Prices vary depending on age and risk issues associated with the consumer and the type of mortgage you may have.  Since your mortgage is likely the largest single loan or financial obligation that most people will have in life, it pays to make sure that you have the proper amount of protection if something catastrophic occurs.

Mortgage Life Insurance

Mortgage life insurance will pay the balance of the mortgage in the event that the insured individual should die. This is a pretty blunt statement and no one wants to think that it might be possible that we could die earlier than we thought but we all know that it does happen. Sometimes it is a heart attack, some times it is a car accident and sometimes it is just being in the wrong place at the wrong time. Whatever the reason, if you were to die, the insurance will discharge the mortgage up to specified levels.

The last thing your family needs to worry about is how they are going to make the monthly installment payments or worse lose the house because it needs to be sold. Sometimes families have no choice but to pick up and move because they can no longer afford the house, with the main bread winner no longer around to earn a living. It is such a simple thing to take out insurance that will pay off the mortgage and let your family live in comfort.

General Life Insurance

As an alternative to mortgage life insurance, some consumers will make sure they have sufficient life insurance that will allow the family to cover the mortgage as well as provide funds for the family to live on. This is particularly important if you have a young family with only one income or a 2nd income that is not sufficient to carry the families expenses. This approach can be a better approach to take since mortgage insurance will only cover the mortgage. It will not provide for any other expenses including taxes and other living expenses.

General life insurance also is paid out to the survivors and the surviving family members can then decide how these funds are to be used. Other debts may need to be paid first and with general insurance you have the flexibility to make these decisions. General life insurance is also less expensive for younger consumers who actually need it the most. The risk of death is lower for younger people who have young families and have not had an opportunity to develop decent savings plans.

Mortgage Disability Insurance

Consumers who have a disability on the job or away from the job can no longer work and earn an income. With mortgage disability insurance, the monthly installment payments can be paid up to a specified amount for a specified period. This will give you time to make arrangements and recover from your disability without also having to deal with selling your house and moving because you can no longer make the monthly installment payments.

Although these are good plans, the disability payments only assist with the mortgage payments and no other family related payments, such as taxes and other living expenses. They also have limitations with respect to the amount of time they will pay the mortgage payments as well as the total amounts that they will pay. Never the less, it is better than nothing and may help you to get through a difficult time.

General Disability Insurance

As an alternative, consumers should also consider general disability insurance. It has some of the same advantages as life insurance in that the disability payments are paid to the family who can then decide how the money will be spent. Hopefully the monthly disability installment payments will be large enough to cover the mortgage, the taxes and other monthly living expenses while you recover. Consumers should develop a monthly budget to help them decide how much insurance they should purchase.

Disability insurance can cover people recovering from strokes, heart attacks, accidents on the job and off the job. It is often more important to have this type of insurance when we are younger  with young families to support with limited savings. As a younger person, disability insurance is also cheaper since the odds of a young person being disabled are lower than older workers.

Installment Loan Insurance

In addition to mortgage insurance, customers can often purchase loan insurance as well. Loan insurance will cover specified conditions and if triggered will pay the balance of the loan. Not all financial companies offer this type of insurance however if you are concerned about this type of debt, you can also purchase life insurance to cover all of your debts separately. Sometimes separate life insurance is a better less expensive option and the proceeds of the insurance can be used to discharge all of your debt and not just the specific loan.

A small life insurance plan to cover several loans will not cost the consumer much and will not overly impact your total monthly installment payments. For a few dollars a month you will have peace of mind and no need to be concerned that your family will need to deal with your debt if you were to die.

Everyone who owns a home knows all about mortgage installment payments. When you purchased your home you arranged for a mortgage on your home after placing as much money down as could. The more money you were able to put down on the home meant that your monthly installment payments were lower, leaving more disposable money for other things each month. Even with this approach many people found they were carrying huge mortgages with huge monthly installment payments required on their homes.

Over the past year we have seen the real estate melt down in the US with millions of people losing their homes when they could not continue to meet their monthly payments or in some case just chose not to continue making payments. Many consumers just concluded that even though they could make the payments, there was no sense in continuing when the value of their homes had lost so much money. Others lost their jobs and suddenly found themselves in dire straights when they could not meet their monthly installment payments on mortgages and loans that they may have had.

Principal, Interest Rates and Term

These are the three factors that are used to calculate your monthly payments. When you negotiate a mortgage, consumers need to pay attention to these factors and several others which we will get into a little later in this post. Your initial monthly payments will be determined by these three factors and it might mean the difference between affording your home and not.

Reducing the amount of money you need to borrow will lower your monthly payments. Obviously you want to get this as low as possible, however at the same time if you are planning some renovations to your new home, you may want to consider borrowing enough to fund these renovations.

The interest rate has a big impact on your payments. Consumers should work hard to get this as low as possible for as long as possible. Any time the interest rate changes on your mortgage, you run the risk of your monthly installment payments increasing and your home becoming unaffordable.

The term is another factor that influences monthly payments. Longer terms will lower your payments. Some people will take a short term mortgage of 15 or 20 years, while the most common is 25 years. There are also mortgage terms of as long as 35 years, however we think these are not the norm. The term is the time that it will take you to pay of the mortgage in full.

Read the Fine Print

Although you have a term of 25 years on your mortgage, your interest rate can change more often. Many banks will offer a 5 year commitment to the interest rate they are giving you on the mortgage. This means that the interest rate will not change for 5 years. At the end of five years , your monthly installment payments on your mortgage will change based on new calculations of the remaining principle, the remaining term and the new interest rate that is available at that time.

If the prevailing interest rate has increased, then your monthly payments are going to go up and conversely if the interest rates have gone down, then your payments will also go down. This is the normal type of arrangement that many banks offer and consumers have come to expect.

Unfortunately we have learned that many banks in the US were offering mortgages that did not follow these guidelines.  the fine print might refer to a change in interest rates partway through the initial 5 years. There were subsidies to the interest rates for a few years that allowed many people to purchase their own homes who normally would not have qualified for a mortgage. When the subsidy ended they were in trouble and could not meet the required monthly payments!

Always take the time to read the fine print and understand the impacts. If you do not understand what is being included, ask questions and get a 3rd party to explain it to you. At the end of the day, it is your home, your credit and your families lifestyle that you are putting at risk, so be fearless in taking the time to make sure that you can always afford to continue to make your monthly installment payments.

Taxes and Mortgage Payments

Some banks want to make sure that home owners will pay their property taxes and will not fall behind in this area. As a result they will ask you to make a monthly installment payment on your taxes. The bank will collect one twelfth of the estimated property taxes that are due on the home each month in addition to your regular monthly mortgage installment payment.

The money collected for your taxes goes into a special account they have set up for you. When the taxes become due the bank will make the payment on your behalf and ensure that your tax account is paid and always up to date. This is an excellent way to pay your property taxes. It smooths out your tax payment into 12 equal payments and gets you into the habit of making these payments on a regular basis.

Failing to pay your property taxes can be as bad as not paying your mortgage payments. The city will place a lien on the property if there are taxes owing  which means you cannot sell the home until you have paid this overdue tax bill in full. Always pay your monthly mortgage installment payment and your monthly tax payments on time every month to avoid any difficulty in this area.

Taxes and Interest

In Canada, we cannot claim the interest we pay on mortgages and loans against our income to reduce the amount of income taxes we pay. The only exception to this is if we borrow money to make investments which earn income.

In the United States, consumers can claim the interest they pay on mortgages to reduce their total amount to income tax they will pay. Consumers need to consider very carefully their monthly payments and ensure that they can always meet the payments and keep their credit rating intact.

Student loans are both a god send and also a curse for every student. Student loans provide much needed funds to students to help them with their studies and pay their bills while attending college or university. They can be a curse as well since some students graduate owing thousands of dollars  to government and banks. Paying these student loan installment payments after graduation can be quite difficult for students after they graduate especially if they have trouble finding a job. The loan typically becomes due upon graduation and installment payments start immediately.

With so many jurisdictions across Canada and the United States we are not going to try and describe all of the different types of student loans. Safe to say that they fall into several categories. One category will be interest free until graduation or perhaps as long as 6 months after graduation. Other types of student loans that are available will have interest charged immediately just as you would with any regular loan. Some students will have a combination of  both types of loans prior to graduation and once they graduate, a blended interest rate and loan will be set up with corresponding installment payments.

In a few cases student loans will be forgiven, however you should not really count on this. The best approach by far is to excel in high school and at college and university to qualify for scholar ship funding which usually does not have to be repaid unless you violate the conditions of the scholarship. Treat the chase for scholarships as a job and a way to earn money while going to school. Of course you need to make sure you do not jeopardize your studies, so you need to find the right  balance.

Sticking to a Budget

Many students who are attending school for the first time away from their parents do not really have any idea what things cost and do not know how to set up a budget. As a result before they know it they have used up the proceeds of their scholarship or student loan and need more money. This of course has longer term consequences. The most obvious being that when they graduate they will owe more money and their monthly installment payments will be that much larger.

The best approach by far is to set up a budget that is withing the limits of your loan and stick to it. You may have to cut back a lot, however you will thank yourself when you graduate and find that you have a smaller monthly installment payment to worry about.

Why Do we Care  About the Size of the Installment Payment

When we graduate from college or university, and have a student loan, this loan will impact our credit score and our ability to borrow money. If you fail to make a payment on your student loan you will negatively impact your credit score and it will be even more difficult to get a loan. Many students when they graduate, want to buy a car, purchase furniture, clothes etc and all of this takes money that they do not have.

It means credit cards or more loans. Before you know it your student loan installment payments and your other loan installment payments are more than you can handle. With credit card interest rates at plus 20%, installment payments can quickly get out of control.

Going back to student loans and installment payments, one big advantage of student loans is that they are often interest free while you are still in school. The minute you graduate or quit, the loan becomes due and interest is charged on your student loan. Quitting school before you graduate, regardless of the reason causes the loan to become due and payable. You need to examine the terms before you sign to see just what the requirements are should you be forced to quit school due to poor marks etc.

Discuss the Terms with the Bank

The best time to negotiate the terms of your student loan is before you sign on the dotted line. Once you have signed the documents, there is little chance to negotiate your terms. Interest rates, the term of the loan and when the installment payments will begin are negotiable before hand and not after. Get all of these items clear ahead of time so that you fully understand this before you sign.

Knowing when installment payments will begin and when interest will be charged at what rate will help you understand what your obligations are and allow you to budget accordingly once you graduate. Knowing all of these details will avoid any surprises down the road.

Co-Signing on Student Loans

Since most students do not have any assets and do not have any credit history, their parents are often asked to co-sign the loan with the student. While this is a wonderful thing to do to help your son or daughter, the parent should really understand what they are signing and what the obligations are should the student be unable to repay the loan for any reason.

In the worst case the parents can be stuck paying the loan and their credit rating may also suffer if payments were missed as well. It pays to pay attention to the details and also that your son or daughter is fully committed to doing well at school so that they can find a job when they graduate and repay the student loan with regular installment payments.

Any failure on the students part will reflect directly on the parent if you co-sign the loan. Credit ratings, ability to borrow, remortgage your home or car are all areas that might come under scrutiny should there be a default on student loan installment payments.

Most parents do not really understand what they are getting into until it is too late. Figure it out now and discuss this with your bank manager and your student children prior to co-signing any student loan.

With the meltdown of the economy in 2008 and 2009, driven by the financial markets, bad home mortgages and who knows what other kinds of loans there were, I thought it would be useful to discuss some of the basics relative to loans, principle, collateral, interest rates and installment payments. Read more »