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When availing of a mortgage or a home loan, the borrower makes a fixed monthly payment known as equated monthly installment (EMI) towards its repayment to the mortgage provider. This payment is primarily made up of interest and capital components.
However, there are additional payments like mortgage life insurance and property insurance that the borrower is also liable to pay. Both insurance policies have a common objective: to provide a safety net in case of eventualities at a certain cost. To make an informed decision, it is important to familiarize yourself with the costs.
A mortgage life insurance aims at protecting mortgage repayments. If the borrower dies during the length of the policy, the insurance company undertakes to repay the mortgage debt and the family members of the insured are able to retain a roof over their heads. In the UAE, banks charge in the range of 0.35 per cent p.a. to 0.4 per cent p.a. of the outstanding loan amount as mortgage life insurance, deductible either monthly or yearly. However, in cases where the mortgage amount is exceptionally high or depending on the overall health of the borrower, this percentage may vary.
A property or home insurance safeguards the homeowner in case of damage to the property or its contents by virtue of theft, fire, natural catastrophes and/or accidents. It is a simple and very affordable means to insure one's valued possessions. As a standard across banks, this is charged at 0.05 per cent p.a. of the property value and is deducted yearly.
In today's times, one can no longer proceed with a mortgage application without availing of mandatory insurance policies. Home loan providers and banks do an excellent job of stressing on the importance of the same, and rightly so. Above all, thorough knowledge of these aspects makes the monthly budgeting easier from a borrower's point of view. These little steps, put together, often go a long way to ensure peace of mind during unforeseen tragedies and provide sufficient protection against potential mishaps.
• A mortgage life insurance undertakes to repay the debt if the borrower dies
• For mortgage life insurance, UAE banks charge from 0.35 and 0.4% annually
• A property insurance safeguards homeowners in case of theft, fire and others
Source: Priyanka Wade, Special to Properties
The writer is a freelancer