Many Filipinos’ greatest aspirations include owning a home. Both you and your family will find it to be a worthwhile investment. However, not everyone is able to fully purchase a home. Many people borrow money to buy their ideal home as a result. It’s the most recommended, if not the best, financing option for buying a new house or renovating a property. The idea that purchasing a home is one of the most stressful life experiences has probably got you vigorously nodding your head if you’ve just started looking at real estate. There is another potential barrier to your white picket fence of homeowner happiness that is lurking in the neighborhood, in addition to the doubtful seller and the clever agent.
You might be shocked to learn that you could lose your home if you have a mortgage and unfavorable circumstances arise. Where will your family live if the bank sells the property because you can no longer afford the bond repayments due to illness, disability, or even death?
Getting life insurance is a simple way to prevent this much more stressful life event, of course. Let’s take a closer look at some of the details of purchasing life insurance as a first-time homeowner.
What is Life Insurance?
A contract for life insurance is made between the client and the insurer. In exchange for the premiums paid by the client throughout their lifetime, a life insurance policy promises that the insurer will pay a certain amount to designated beneficiaries when the insured passes away.
For the contract to be legal, the life insurance application must precisely list all of the insured’s past, present, and high-risk actions.
When is the Best Time to Get Life Insurance?
It can be simpler to obtain the desired life insurance policy if you are younger and in better condition. Having one now can give you a sense of security if you have a partner, spouse, or family that might struggle financially.
Life Insurance for Real Estate
A truly fascinating chapter in life begins with a home purchase. One of the major financial obligations and duties it entails is mortgage repayment. House prices continue to rise annually due to inflation. Your partner or family members would be responsible for the debt if you were to pass away before paying off your mortgage. Taking responsibility for caring for your loved ones may lessen that strain. Insurance can help your family feel a bit less anxious and bring some peace of mind during a difficult time when they are already suffering from your loss. It will assist them in paying off any unpaid mortgage obligations and lessen some of the financial hardships they might face in the event that you pass away. In addition, it differs from building insurance, which protects the home from damage caused by fire, breaking and entering, and natural disasters.
What is Mortgage Redemption Insurance?
Mortgage Redemption Insurance is a type of life insurance that helps pay off your outstanding mortgage balance in the event that you pass away before the loan is fully repaid. Since Mortgage Redemption Insurance will pay out your remaining debt if you pass away, it will prevent your home from going into foreclosure. Mortgage Redemption Insurance has a fixed spending cap and time frame of coverage, just like any other insurance policy. It determines how much and for how long your mortgage can be paid off. Your coverage will improve as your premiums rise.
Nowadays, Mortgage Redemption Insurance is required when requesting a housing loan in the Philippines. You will be asked to obtain this policy from your bank as a condition of the loan.
If you have life insurance, for example, a Sun Life or PruLife UK life insurance policy or VUL, you can use this as your mortgage redemption insurance, too. Simply designate your loan provider as your insurance beneficiary. Instead of having your home foreclosed due to surviving family members who cannot pay the loan, your life insurance proceeds will pay off your housing loan. While many hesitate to get Mortgage Redemption Insurance because of its hefty premiums, this may save your loved ones from drowning in debt or losing the home you worked hard for.
Application form, valid IDs (such as a passport, driver’s license, senior citizen ID, PRC, SSS, GSIS, etc.), proof of income (such as a mortgage redemption insurance form, income tax return, or appraisal fee), and collateral documents (such as an occupancy permit, a statement of account, a tax clearance, a deed of absolute sale, a floor plan or neighborhood map) are all required.
How does Insurance help in Real estate Purchase
Life insurance provides you and your family with more than simply assurance in the event of a tragedy. It may also assist you in purchasing your ideal house and establishing roots.
Have you already purchased a life insurance policy?
Are you considering making a purchase?
Here are some essential things about borrowing money to purchase a home with your life insurance.
What Type of Life Insurance Will I Need?
The appropriate kind of policy is necessary as a first step. It must be so-called “permanent” life insurance for your life insurance policy to be used by your home purchase. This basically implies that it will cover you for the rest of your life, however long that may be and as long as your premium payments are current. “Whole” life insurance is another term for permanent insurance.
Permanent Life Insurance Policy
The purpose of permanent life insurance is to build up a cash value over time. That value increases in size as more premiums are paid. You can borrow money from it once it has a respectable balance, just like you would with a credit card or loan. Additionally, taking out a loan against your life insurance policy will cost you money, just like with these other forms of finance. Until the loan is paid off, interest will be paid every month (or with money from the policy’s death benefit).
Universal Life Insurance Policy
Some insurance providers also provide what is referred to as “universal” life insurance, which enables you to contribute more money to the policy. This translates to a higher cash value and more available funds over time. You can use variable life insurance coverage to help pay for your house. These have a tendency to change in value in cash according to the market.
Term Life Insurance Policy
The only kind of life insurance that you cannot use to pay for your home? That is a form of term life insurance. These policies are not redeemable for cash and cannot be used as collateral for loans.
Life Insurance As a Down Payment
The down payment and closing fees for your home can also be covered by a cash-value life insurance policy. Homebuyers with permanent or whole life insurance may be able to borrow against their policy to get the funds required for a down payment, closing expenses, or any other upfront costs associated with the purchase of a property.
In addition, a larger down payment may result in lower interest rates, more manageable monthly mortgage payments, and more lending possibilities, all of which are beneficial to a homeowner in the long run. You can utilize permanent and whole life insurance policies to pay for things like the property inspection, repairs or renovations before moving in, or even items like furniture, decor, or moving expenses because they are both easily secured by loans.
Life Insurance as a Liquid Asset
You can obtain a loan in one of two methods with the help of this kind of cash-value life insurance policy. First of all, these policies can be considered as liquid assets, which mortgage lenders highly value when assessing debtors.
Access to cash is simple and virtually immediate thanks to liquid assets like permanent life insurance contracts. The borrower might easily borrow against that life insurance policy and use the money to catch up with their lender if they were to fall behind on their mortgage payments. Naturally, having this kind of security provides lenders more faith in a potential borrower, and it can even lead to reduced interest rates being offered to that borrower as a result.
A Friendly Reminder for Homebuyers
Ask your insurance agent or financial advisor to run what is known as an “in-force illustration” before making any major decisions. This will show you precisely how taking a life insurance loan will affect your policy. If you don’t manage the situation properly, there could be a lot of unanticipated expenses, tax repercussions, and even the possibility of losing your policy.
Because you aren’t required to pay back the loan, borrowing from a permanent life insurance policy may be appealing. Any funds you withdraw but don’t repay will simply be subtracted from the death benefit paid to your beneficiaries.
However, there is still interest due on the loan, and this is where problems may arise for many people. If you don’t pay back the loan, interest begins to accumulate, increasing the loan balance until you are paying interest on top of interest.
The loan itself is not due until the interest is paid. You run the risk of losing your life insurance policy entirely if the total amount borrowed plus interest starts to exceed the policy’s cash value. You risk receiving a sizable tax bill from the IRS for borrowing from your policy if you attempt to pay the interest with dividends or by withdrawing more from it.
It goes without saying that borrowing money from your life insurance policy to buy a house can be wonderful and life-changing, but it’s not something you should decide on your own without the advice of a financial or insurance professional. Simply put, the chances of getting into trouble are too great.
Lastly, if you want to achieve your dream home but your savings are not enough to buy a house in full, fortunately, BRIA Homes offers a housing loan through a Bank loan. BRIA Homes is a subsidiary of GOLDEN MV Holdings, Inc., one of the largest real estate companies in the country. BRIA Homes is primed to bring quality and affordable house and lot packages and condominium units closer to ordinary Filipino families. This is the goal that drives every single employee in the company, for which the ultimate fulfillment is seeing a client happily moving into BRIA’s homes.
Written by Alfred Alaba