Whether you already have a mortgage or are looking for the best deal, you need to know how cancer might affect your arrangements.
Choosing the right mortgage (home loan) for you can be complicated. It’s important to get good advice and information.
It’s always best to try a number of mortgage lenders. Explain your circumstances, needs and concerns, so you can get the best advice and find the best deal possible.
Advice from financial advisers
Independent financial advisers can advise you on products from the full range of providers in the market.
Restricted financial advisers can only advise you on certain products or providers. They must always tell you if they are tied to a particular company or agent. Some restricted advisers may offer a ‘whole of market’ service, but it’s still restricted to certain lenders.
All independent and restricted financial advisers are regulated by the Financial Conduct Authority.
Ask your family and friends if they can recommend a trustworthy financial adviser. Or get a list from the link below.
Advice from the Council of Mortgage Lenders
The Council of Mortgage Lenders has a code of practice which governs banks, building societies, brokers and authorised financial advisers. The code says they should make every effort to find the very best policy for you.
Everything should be kept as simple as possible. Mortgages can be very complicated and you need to be able to make an informed choice on the type of mortgage that suits you. You can find some advice on their website.
The amount of money you can borrow depends on your ability to pay it back.
So the lenders will want to check your income, regular outgoings and expenses, age, financial history and security for the loan (your assets, or what you own).
There are various types of mortgage.
Repayment mortgages are the standard type of mortgage. You repay the amount borrowed, plus interest over a given term. The rate of interest can vary over time. But you’re now more likely to be offered a fixed rate mortgage, where the interest rate stays the same for a set number of years.
Most types of new mortgages now are full repayment mortgages where interest and capital is fully repaid over the term.
Where this is a mortgage on your home most lenders also expect the mortgage to be repaid before you retire. For a new mortgage you may be limited to repaying your mortgage before your state retirement age. This may mean the term you are offered (the duration of the mortgage) could be shorter. This will affect the monthly payments and the amount you may be able to borrow. A good adviser will assess how much you can borrow and provide you with an agreement in principle.
Insuring your loan
You can get repayment mortgages without having to give your medical history. But the lender may want you to protect the loan with insurance. You will need to tell the insurer about any medical condition you have (or have had in the past).
Even if your lender does not insist you have insurance, it really could be in your best interests to protect your loan this way. Talk to your financial adviser about it.
Check any life insurance or critical illness policies that you already have. They might already cover the full repayment of a mortgage if you die before it is paid off. Or you might be able to add this benefit to an existing policy by arranging to pay extra premiums.
And check any income protection insurance that you might already have. You’ll probably have to increase your premiums to cover your mortgage repayments.
Without insurance, you might find it very difficult to protect the loan. Suppose you had to stop working because of illness. You might not be able to keep up the repayments, and your mortgage lender would be able to repossess your house.
This is usually the last resort. But arranging some sort of insurance will avoid this situation.
Interest only mortgages (endowment mortgages)
With interest only mortgages, you pay interest during the term of the loan and then the full sum at the end of the term. These mortgages have become more difficult to get recently.
One form of interest only mortgage is the endowment mortgage. This is an endowment policy and interest payment combined. It involves more risk than a repayment mortgage.
You have to make payments into the endowment policy. The idea is to build up enough savings or investment to repay the full amount of the loan in a lump sum.
But this relies on these savings or investments growing at an assumed and adequate rate. Many people have found that endowment mortgages have not produced enough money to pay off the mortgage.
So if you already have an endowment mortgage, get some advice from a financial adviser. They’ll help you to check how well your endowment has performed, and tell you if you need to take any action.
Most insurers don't offer endownment poliices anymore and it is highly unlikely you will be advised to have this type of mortgage.
Insuring your loan
Endowment policies include life insurance. It’s a necessary part of the policy so you’ll need to disclose your medical history. Even if you have cancer, you might still be able to get an endowment policy. But your premiums could be higher.
As with all aspects of insurance, it’s best to ask a number of brokers, insurers and authorised financial advisers before you make a decision. You can get a list of potentially suitable insurers from the British Insurance Brokers Association (BIBA).
Interest only ISA mortgages
An Individual Savings Account (ISA) mortgage is really another way of saving efficiently.
It doesn't have any medical underwriting as it doesn't have any insurance attached to it. It’s more flexible than an endowment, because you don't have to continue with it for a fixed term and you can increase your savings any time. You can also add lump sums of money up to the ISA limit for that tax year.
This type of mortgage usually has lower charges. So it should give you a better return for your money.
It relies on the savings in the ISA to repay the capital at the end of the term. It would be very difficult to find a lender who would offer this type of mortgage on a new home.
Remember that you’ll need a separate insurance policy in order to protect the mortgage.
With an offset mortgage, any money you have in your current account or savings is used to offset your mortgage debt.
So money that you wouldn’t normally pay in to your mortgage account can be deposited in to the offset account. You can still withdraw it at anytime.
As a result, you only pay interest on what you owe overall. This can save you money on interest payments, and help to pay off the mortgage faster.
You also avoid paying tax on any interest that you’d have got on your savings. This interest might have been at a lower rate than your mortgage interest anyway. And you can make overpayments without being penalised.
The downside is that interest rates haven’t been as good as on other types of mortgage. And you need to be quite well organised with your money to avoid getting into difficulties.
There are 2 types of offset mortgage available.
A current account mortgage (CAM) keeps all your finances in one account. So if you have £2,000, but you owe £80,000 on your mortgage, then you’re effectively £78,000 overdrawn.
In other offset mortgages, your current account, savings and mortgage are kept in separate pots, but are linked to calculate your interest.
Lifetime Mortgages (Equity Release)
These are mortgages only available to older people. Usually the minimum age is 55 and there is usually no maximum age. This is a very specialist mortgage and qualified financial advice is essential.
This mortgage doesn't have an end date. The loan and the interest is repaid after you have passed away or if you vacate your property. An example of when you might vacate your property is if you move to a residential care home. Your health does not need to be disclosed when you apply for this type of mortgage.
Interest only payments can be made. But it is more common that no repayments are made at all. Instead the interest can be added to the mortgage. And the debt will build up each year.
Not making any payments of the interest or capital will have an effect in the future. It is important that an adviser explains to you what it will be.
This is sometimes called Accident, Sickness and Unemployment Insurance (ASU). You pay monthly premiums. The policy then pays your mortgage repayments for up to 12 months if you become seriously ill or lose your job.
This can be important, because unless you took your mortgage out before October 1995 you can’t get help from the Benefits Agency until you’ve been claiming benefits for 9 months.
Mortgage Payment Protection Insurance can help until you qualify for benefits. However, you will still need some money put by. There is usually a period of notice (between 60 and 90 days) before the policy takes over the repayments. So the first 2 or 3 payments will still be down to you.
You should put in your claim for help as soon as possible. Include documents confirming your financial situation and medical condition.
This policy can also pay off a mortgage if you die. People who already have cancer might be able to take out this insurance depending on their type of cancer and the stage they have reached in its treatment.
You might not be able to take out a mortgage yourself because of your illness. It may be possible to have someone stand guarantor for you. This is someone who guarantees to pay your mortgage if you can't.
The guarantor might also have to arrange any necessary insurance. A suitable guarantor must have enough income to cover your mortgage and their own, if they have one. Your financial adviser, potential lender or insurance company will be able to explain the possibilities to you.
You are not obliged to tell your existing mortgage lender if you’re diagnosed with cancer. You don’t need to do anything as long as you can pay the mortgage as usual.
But your illness might make it harder for you to pay the mortgage. Suppose you have to take time off work and your income drops. You could then have trouble meeting your mortgage payments.
Tell your mortgage lender as soon as possible if you’re having financial difficulties or are behind with your repayments. The Council of Mortgage Lenders’ code of practice says that lenders should be sympathetic towards borrowers' financial problems and should offer positive solutions.
This will almost always be the case. Your lender may be able to:
- suspend your repayments for a short time
- reduce your payments to interest only for an agreed length of time
- reduce your repayments (if you have a repayment mortgage) and extend the term or duration of your mortgage
Claiming mortgage payment protection insurance
Many lenders issue mortgages with some form of insurance which will cover repayments for a certain period. You may want to call on this insurance if you’re off work and need help with your mortgage repayments.
Contact your insurer as soon as possible. This is important as it usually takes 2 or 3 months before the insurance pays out (this is called the 'period of notice').
For advice and guidance on mortgages available in person, over the telephone, by post or online:
The Money Advice Service
Helpline: 0800 138 7777 (Monday to Friday, 8am to 6pm, Saturday 9am to 1pm)
An organisation set up by the government to give clear, unbiased money advice.
For help in finding an insurance broker:
British Insurance Brokers' Association
Phone: 0370 950 1790
For information about insurance, including different types of cover:
Association of British Insurers
Phone: 020 7600 3333