Guest article presented by IntelliQuote

While the past couple years have created financial havoc for millions of Americans — foreclosures, 10 percent unemployment and manic-depressive financial markets — there has been a silver lining for millions of others: Mortgage interest rates. Rates have plummeted to historic lows and millions of homeowners have refinanced, often saving hundreds of dollars per month in the process.

With such savings, they’re paying off credit cards and increasing their savings. Easy to overlook, however, are unintended, and potentially adverse, consequences of such refinancing, consequences that may not become apparent for years, or even decades.

Consider the problem that refinancing could create with respect to life insurance coverage: Homeowners often buy term life insurance designed to pay off their mortgages in the case of an untimely death. As most people envision that they’ll have their mortgages paid off by age 65, many acquire a policy that covers them up to that age. A problem can occur, however, if, as a result of refinancing, mortgage payments get extended into retirement.

In the early years of a mortgage, payments are chiefly comprised of interest, so, material reductions in principal are back-loaded. Hence, if a $250,000 mortgage is refinanced for 30 years at age 45, at 65 another 10 years of payments will remain and, even though two-thirds of a mortgage term has passed, more than half of the principal debt will remain.

Often people don’t discover the problem until they reach 65, and they get a letter from their life insurance company notifying them that their coverage is about to expire. They request a quote for an additional 10 years of coverage and receive the shock of their lives … premiums have quadrupled, for half the amount of coverage and that’s if they medically qualify without ratings and exclusions, which many do not.

While a couple in retirement may be able to handle the extended mortgage payments comfortably, when one dies a significant portion of the household income — Social Security, pensions or annuities, for example — may die with them, or be significantly reduced. Without insurance to pay off the mortgage, the surviving spouse may be faced with mortgage payments they cannot handle. Furthermore, the potential for the surviving spouse to generate replacement retirement income (reverse-mortgage or buying a less expensive house) is dramatically reduced as there isn’t, because of the outstanding debt, as much equity in the home to work with.

If you are one of the millions of Americans who have recently refinanced your home, it probably make sense to check your coverage and, if necessary, look into the cost of recalibrating the duration of your life insurance policy with the duration of your new mortgage.

Couples should consider mortgage life insurance independent of the bank where they get their mortgage. Bank life insurance is generally pretty pricey and it’s non-transferable, meaning that if you move, or even refinance your existing home, the coverage for your new mortgage will have to be obtained at an older age and will require medical re-qualification. This can become a significant problem as people get older.

ABOUT INTELLIQUOTE
A leading online life insurance broker since 1997, IntelliQuote has provided customers simplified, private access to compare, shop and buy life insurance online, including term life insurance. IntelliQuote offers clients a wide selection of competitive products from A-rated carriers, supported by licensed agents. This simplified approach makes purchasing a policy easy and straightforward while providing a savings of up to 70% per policy. IntelliQuote is a member of the LIFE Foundation and is committed to ongoing consumer education. For more information, contact www.intelliquote.com, or 888.883.6855.