Two months behind?

[cimbom]

Hello again,

Now that we have a PPOR, we are looking at arranging income protection insurance (and possibly, trauma cover as well). We were initially going to go for a 1 month waiting period but are considering extending it to 2 months so that we can add some trauma cover as well while maintaining similar premiums.

Is 2 months behind your mortgage payments enough for the bank to start the process for foreclosure, especially if they knew that you had insurance that would pay out soon? I think it'd be very unlikely that we'd be unable to meet our obligations during this period but I guess you can never be too sure, especially when possible medical costs and the like are involved.

Thanks

 

[Aaron_C]

The bank takes about 60 days to start the foreclosure process, then a long time again after that if there is some hardship / other regs involved.

 

[jusm]

Do you have sick leave to cover you for a period of time?

My income protection doesnt kick in for 6 months because I have a load of sick leave I can use first. Saves a fortune on the premium.

 

[cimbom]

Well that was obvious. Didn't think of sick leave.

Will go for 3-4 months waiting period then. Thanks for your quick replies

 

[Peter_Tersteeg]

You shouldn't be looking at the question from the point of view of how long will it take before the banks come after you. This is extremely bad planning.

If you start getting income when the banks are knocking, you'll already be months behind. Your income protection will only pay 75% of your salary so even once it kicks in you'll still be under mortgage stress. You'll also be in default with penalty fees and interest rates to cope with. Odds are, things will be so bad by that point that your income protection won't be able to bail you out.

The best way to approach your waiting period is to look at your finances and savings to determine how long your savings will keep you going before you need to get an income again without getting behind on payments and bills. Deduct 20% from that estimate and you'll have a more realistic waiting period.

If you don't have any money in savings, your waiting period should be in line with the amount of sick leave you've got available. Also you shouldn't assume that sick leave is cumulative.

 

[cimbom]

Thanks for your post. That makes sense but is a bit hard to do at present. We have just moved in recently so the bulk of our savings has gone to appliances, furniture and small renos for our PPOR (we lived in a furnished apartment previously so needed to buy pretty much everything). I'm not sure how to estimate what our savings will look like say a few years into the future. I have 2 months sick leave at present and we can ordinarily save the equivalent of our monthly IO mortgage payment each month anyway so I think 4 months should be fine.

 

[marg4000]

Take out the waiting period you need now. You can always vary this on renewal of the policy.
Marg

 

[weg]

Put some savings in an offset (save this slowly as a small regular deposit if funds are tight) or get a small LOC for a buffer.

I personally wouldn't want to be flagged by a bank for defaulting on any repayments, not even a month.

What we always did with PPOR mortgages (they were never going to be IP's at any stage however) was to pay fortnightly and extra on top of the P&I so in time we were able to have a repayment 'holiday' no questions asked if ever we needed it.

Gives you piece of mind and allows you a longer waiting period.

For now however, what marg says.

 

[VYBerlinaV8]

Put some savings in an offset (save this slowly as a small regular deposit if funds are tight) or get a small LOC for a buffer.

I personally wouldn't want to be flagged by a bank for defaulting on any repayments, not even a month.

What we always did with PPOR mortgages (they were never going to be IP's at any stage however) was to pay fortnightly and extra on top of the P&I so in time we were able to have a repayment 'holiday' no questions asked if ever we needed it.

Gives you piece of mind and allows you a longer waiting period.

For now however, what marg says.

Quoted for emphasis. Defaulting is a last resort. Push your payout time out a bit, and save up a buffer that can be used. Also, we have a plan we could implement to immediately reduce our living costs if something went wrong, thus extending the time our buffer will last.

 

[mikezen]

Do you have sick leave to cover you for a period of time?

My income protection doesnt kick in for 6 months because I have a load of sick leave I can use first. Saves a fortune on the premium.

How do u have so much sick leave? I was under the impression you couldn't carry it forward year after year therefore it was limited, however happy to be proved wrong

 

[weg]

How do u have so much sick leave? I was under the impression you couldn't carry it forward year after year therefore it was limited, however happy to be proved wrong

Sick leave is usually carried forward year after year... or is that just in the public service??

cimbom, have you checked your employer contributed super. Many of these now have inbuilt sickness, disability and death cover.

My state government super has this and kicks in a month after I use up the sick leave, so only a month's cover to worry about - it pays 75% of my income for 18 months but will continue to pay in 18 month blocks 2 years from a previous claim (in the case of a chronic condition).

 

[cimbom]

Thanks again for all the comments. I've decided to go for a three month waiting period for myself (it was either three or six months - no option for four) and one month for my husband, as he is working part-time and doesn't get as much sick leave. Now just need to determine the amount for trauma cover.

We both have life insurance inside our super funds.

 

[MsAli]

Hope you have a good financial planner. We had a hopeless one recommended from someone we trusted and it left us quite exposed with no insurances for months this year when transitioning to SMSF. Then a friend recommended a really good financial planner who worked for us.

 

[ownthing]

Also note after meeting the waiting period providers payout the claim monthly in arrears so its good you went with 3 months if you can withstand 4 months