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Why get joint mortgage life cover

Joint mortgage is a secured loan that two or more people are responsible for. Usually, married couples or partners in a civil union combine their incomes to be able to qualify for a larger mortgage. Friends can also group together to take out a joint mortgage. For the purpose of this article, we will be concentrating on joint mortgages taken out by spouses or partners in a civil union.

Taking the mortgage plunge

Some details on a joint mortgage:

  • The persons who take out the mortgage are jointly liable for the loan repayments.
  • Spouses are usually joint tenants, where ownership of the property is split 50-50.
  • Upon the death of one spouse, the mortgage is assumed by the surviving spouse.
  • When the couple divorces, separates or one moves out of the home, both couples are still responsible for making the payments, unless there is a written agreement that one spouse assumes the entire mortgage.

Couples take out a joint mortgage so that they can buy a house that they would not otherwise be able to take a loan for if they only applied on the basis on just one spouse’s income.

One other option is to hold the property as tenants in common, where each person contributing towards the payment of the mortgage owns a specific share of the property. This doesn’t have to be an equal share – it can also be based on their share of payments. When one of the tenants dies, the share he has does not automatically go to the other owners. Instead, it is passed to next of kin or to the person specified in a will, if he has one.

How about common-law partnerships?

From a legal standpoint, common-law partnerships are not recognised. This means that even when a property is bought by two unmarried partners, if one of the partners die, the dead partner’s share does not automatically go to the surviving partner. They need a will that will stipulate that the surviving partner will get the share. However, depending on the share each partner has on the property that they own, the surviving partner will still be liable for the remaining mortgage debt.

For common-law partners and friends who are thinking of buying a property, it is highly recommended that they draw up a cohabitation agreement. This will specify the financial responsibilities of each partner as related to the joint mortgage.

Should spouses put both their names on the mortgage deed?

It is also important to ensure that if you are both paying the same amount for the mortgage (or equal share of household expenses, including the upkeep of the house), each partner’s name is on the mortgage deed.

In the event that anything happens in the future (death of one partner or separation), each partner has an equal claim on the property bought through a mortgage.

However, it is also vital to note that when your name is on the mortgage deed, whether the property is held as a joint ownership or tenants in common, you assume the responsibility for the mortgage. The term is “jointly and severally liable”. This means that if one owner fails to pay his share of the monthly mortgage payments, the lender can go after the other owners named in the deed to collect on the late payments.

Joint mortgage life insurance

Regardless if you are a married couple or common-law partners, joint mortgage life insurance can help protect the mortgage. In the case of one partner’s death, the insurance will pay off the mortgage. Since the proceeds of the insurance are paid out to the lender or the surviving partner, rather than the deceased partner’s estate, the payout comes tax-free.

One other reason why joint mortgage life insurance is selected by couples is that it is cheaper than getting two separate mortgage life insurance policies. The couple can save up to 10% of the premiums through the joint mortgage life cover.

When does the policy pay out?

Joint cover pays out depending on the basis specified in the policy:

Choose a policy with a separation option

In the event that you and your spouse separate (divorce or dissolution of a legal union), the separation option enables the joint mortgage life insurance policy to be terminated and two separate policies issued without the need of submitting further medical evidence. This means that each of the newly-separated individuals can assume the existing mortgage or get a new mortgage on a new house and be confident in the fact that they each have the mortgage life insurance they need.

The separation option has the following features/requirements:

Choose a policy with a replacement option.

For a joint life first death cover, the surviving spouse is left without mortgage life insurance for himself after the death of his spouse. He can apply for a new policy but he will be subject to changes in premium due to his increased age or any changes in his health condition. The problem is, if he gets sick enough to be considered uninsurable, then he cannot get the cover he need to protect his mortgage.

The replacement option enables the surviving spouse to get new mortgage life insurance without the need for submitting further medical evidence. Upon the first spouse’s death, he can exercise this option and get a replacement policy. The maximum term and amount of insurance is equal to that of the existing policy.

Latest update: 17.06.2013

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