HOUSE MORTGAGE REPAYMENT

Dominion, Volume 30, Issue 153, 25 March 1937, Page 10

HOUSE MORTGAGE REPAYMENT

Life Insurance PREMIUM MAY BE ADDED TO LOAN State Advances’ New Plan A combined plan has been arranged by the State Advances Corporation and the Government Life Insurance Department to enable mortgagors of the corporation to provide by life insurance at a reasonable cost against the contingency of their failing to survive the date when the corporation’s table mortgage would be repaid. The initial premium may be added to the loan and repayable by instalments. In the event of the death of the assured the insurance office will repay the whole of the principal outstanding, and thus ensure for the mortgagor's dependants a mortgage-free home.

Tlie Prime Minister, Rt. Hou. M. J. Savage.' in outlining the plan yesterday. said:—

“It is not unusual for a man of moderate means to take out .a life insurance cover for the specific purpose of providing in the event of his deatli sufficient funds to liquidate the mortgage and leave an unencumbered home to his dependants. It is recognised, however, that many married men, especially those in the early twenties who have small incomes and little capital resources, may tind difficulty in paying the annual premium on a full-life policy of, say, £SOO or £lOOO, in addition to meeting instalments on a mortgage and other outgoings such as rates, insurance, and maintenance. By limiting (lie insurance cover, however, to the amount of the reducing balance of principal under the corporation's loan, it is possible to quote a greatly-reduced premium, while still ensuring to a mortgagors’ dependants a mortgagefree home in tlie event of his premature death. Easy Payment. “A single premium is payable at tlie commencement of the policy varying with tlie amount of advance, the age of the mortgagor, and tlie term of the loan. The applicant may, if he so desires. pay the premium in cash; but in many eases this is not convenient, and the corporation, provided the proposal is approved by tlie board of management and accepted b.v tlie Government Life Insurance Department, is prepared to increase the loan to cover the amount of the premium. The additional advance is then repaid to the corporation by instalments as part of tlie loan moneys. Au example is quoted : “Borrower is 30 years of age and term of repayment is 30 years. Amount advanced £lOOO Single premium . 7<>

Total mortgage debt £lO7O Half-yearly instalment for 30 years mi £lO7O . = £3l 5 1 Half-yearlv instalment for 30 years on £lOOO . = 29 4 2 Half-yearly cost of life insurance £2 0 11 Weekly cost (approx.) 0 1 6 Scope of Benefits. "Tlie protection afforded by this type of policy is the clearance of tlie balance of the State Advances Corporation’s instalment mortgage in the event of the death of the assured, but it should be noted that the cover extends only to the balance of principal of the mortgage which has not fallen due prior to tlie deatli of tlie assured mortgagor, e.g., if a borrower having a mortgage of £lO7O dies before the first half-yearly instalment falls due, tlie insurance office will repay the whole of the £.1070 principal outstanding. On the other hand, if a mortgage granted for a term of 30 years has been current for 20 years at the death of tlie assured aud under the table of a half-yearly repayment the principal moneys should at that time have been reduced to £520, only the latter amount will be payable by the insurance office. It must be understood that all benefits under the policy lapse on the maturity date of the mortgage. “If any mortgagor who nas taken out a policy under this scheme ceases to be tlie legal owner of rhe security or the whole or part of (ho principal is '.epaid by arrangement with tlie State Advances Corporation before it becomes due in terms of the loan, a proportionate part of the single premium (calculated on an actuarial basis) will be recovered from the insurance office and credited to (he mortgagor's account.

“The service is also available in approved cases to persons whose properties are already mortgaged to the corporation, as well as to new applicants for loans. Provided the corporation’s usual margin of security is available. ,a further advance will be granted in such cases to cover the amount of the single premium, a merely nominal charge being made for preparation of tlie necessary documents. “Mortgage repayment insurance on similar lines has been widely taken up in England and to some extent also in Australia and New Zealand by insurance offices in co-operation with various building societies. It is hoped that tlie scheme now inaugurated by the State Advances Corporation and the Government Life Insurance Department will be a valuable adjunct to the corporation's work in providing mortgage finance.”