Sometimes, life throws things at us that can cause a shock to our finances. A third of adults in the UK have taken a blow to their financial situation due to things like bereavement, illness and redundancy. These things can happen at any time and, with the events of 2020 & into 2021, the prospect of job losses may be higher than ever for many people.
Though everyone is aware of the possibility of these things happening, many don’t make a plan for what to do if it happens. With the chances of redundancy, illness or bereavement being higher than you might think, your finances can quickly be plunged into chaos if you don’t have a contingency plan in place to soften the impact. Your mortgage is an important commitment and if you become unable to keep up with repayments then you could lose your home.
What can you do to avoid this happening in the event that you lose your job or experience hard times?
Establish a ‘rainy day’ fund
One route to take is to set up a ‘rainy day’ fund. This means building some savings that you have in reserve – accumulating enough to cover at least three months will give you some breathing space in the event that you suddenly lose your job.
If you’re having difficulty putting money aside for this purpose, it can be helpful to take stock of your situation and identify areas where you could cut back. There are many budget planning tools available that can help you develop a picture of your monthly spending and see where you might be able to reduce expenditure and help with saving.
A rainy day fund will buy you some time to find a new job but, if you find yourself out of work for an extended period, especially through illness, those savings could dry up rather quickly.
Consider protection insurance
If you have people depending on your income, such as your children, it may be worth considering some form of protection insurance. There are various insurance products out there that could protect your mortgage repayments. Some employers even provide this type of coverage, so check your employment details to see if you have anything in place.
If you become unable to work due to illness, a critical illness insurance plan could provide a lump-sum payment to cover your missed earnings. However, you may wish to use that money for your healthcare. You could also consider income protection if you are concerned that you may become unable to work due to illness or injury. This would provide a regular monthly payment rather than a single lump sum.
Similarly, if you were to die unexpectedly, a life insurance plan could provide your loved ones with a lump sum payout to cover the mortgage. The simples (and often cheapest) option is to look at a ‘decreasing term’ life insurance policy, in which the level of coverage you have decreases along with your mortgage balance.
Another income protection option, is Mortgage Payment Protection. This can cover home repayments fully for a predetermined period following accident, sickness or redundancy.
Find the right deal
One of the keys to being able to keep up with mortgage repayments is to find the right deal from the outset. With lower monthly repayments, the financial pressure will not be so extreme if you are out of work. You could try to find the best deal yourself, but mortgage brokers like Think Plutus can provide expert advice and whole-of-market searches to zero in on the perfect deal for your circumstances. We can also help you find the right insurance cover to protect your loved ones in the long-term.
For mortgage advice that puts your security first, Think Plutus.