In what ways does a Housing Loan Preservation Plan (HLPP) assist borrowers in the event of default?
The advantages of owning your own house are numerous. Because land is an appreciating asset, owning a home is a smart investment even if the purchase price is high.
When you take out a home loan to pay for a house, you’re taking on a long-term debt obligation. In the event of the borrower’s death or disability, the loan amount is paid by the borrower’s heirs. Debt repayment becomes more difficult if the borrowers’ income is the only source of income in their family.
When a borrower files for a home loan, the house that is acquired serves as assets for the bank until the total loan amount is repaid, which is well known. So, if the borrower dies and his or her heirs are unable to pay back the loan’s outstanding balance, the bank has the right to rent the property in order to recoup its losses.
What is loan insurance?
Housing Loan security is a new insurance policy offered by banks that ensures repayment of a borrower’s loan in the event of the borrower’s death or incapacity, which results in a reduction in income. A loan extended warranty may be required by some banks in order to obtain a loan.
As an insurance policy, a Housing Loan Protection Plan is often bundled with a mortgage. This insurance is provided by insurance companies and banks as a safety net in case of death or disability. The insurance premium for a Rs.50 lakh home loan, for example, is added to the loan’s cost by the bank. The premium is Rs.60,000 for a 10-year policy, making the total loan amount Rs.50.6 lakh.
Thereafter, the monthly payment on the house loan will be made up of the principle, interest, and insurance premium. If the health coverage premium is paid as part of the loan’s EMI, tax refunds cannot be claimed. This is important to keep in mind. If the borrower pays the premium on their own, they can claim a tax deduction.
Is there a formal structure for a mortgage loan protection plan?
A Term Insurance Policy has a similar structure of payment when it comes to the Housing Loan Protection Plan, with the alternatives of either:
Every month, the borrower makes a payment known as an EMI, or Equated Monthly Installment. A portion of your monthly mortgage payment will go toward paying the insurance premium, which is included in the Housing Loan Protection Plan’s price.
An insurance policyholder might choose to pay a single premium for the duration of the policy. In some cases, the premium for a house loan may be included in the total loan amount.
Another choice is to pay the insurance premiums for a limited period of time during the life of the home loan.
How may a mortgage be insured?
You can insure your house loan in one of two methods. They’re as follows:
All of your assets and liabilities are protected by term insurance. Taking out a term insurance policy has numerous advantages, including:
Since a term insurance policy’s coverage does not decrease throughout the course of the loan, the beneficiaries will get a fixed sum of money in the event of the borrower’s death rather than a declining sum.
There is a possibility that interest rate fluctuations could cause an EMI timeline to be extended. In order to make sure that the home loan protection plan you select will cover an extension in the term of the loan, you must conduct your own investigation.
Your home loan will not be affected if you switch lenders during the term of your insurance.
If you have term insurance, even if you default on your mortgage, you will always be covered as long as you keep paying your premiums.
The borrower’s outstanding house loan is protected in the case of his or her death or disability by a Separate Home Insurance policy.
What else does insurance for a house loan provide?
Optional rider plans are often included with most mortgage insurance policies, and they can be extremely advantageous. These rider plans don’t only stop at death:
- End-of-Life Condition
- if a person dies as a result of an accident
- Loss of income for three to six months, at which time the EMI is due
- Disability
If you’ve already borrowed a lot of money and need to pay it back, a house or housing loan extended warranty may seem like an unnecessary expense. However, if you want to secure your house and your family from any unforeseen occurrences, you should buy a home loan security strategy.