Will PPI pay out if I remortgage?

A reader is worried her payment protection insurance (PPI) will stop paying out if she remortgages.

Tony Davis, myfinances.co.uk mortgage expert from Mortgage Meadow, takes her through the problem.

Catherine from Coleraine asks:

I have PPI for my mortgage with Legal & General (L&G) they are paying out at present because I had to give up my work through serious illness, although they say it's not covered to pay off the full mortgage.

My question is: can I remortgage and still receive the payments from L&G or is it all tied to the original mortgage which I took out at the same time?

Does that mean I lose the payout if I change mortgages whether on the same property or not?

Tony replies:

There are several points that you mention that I would like to address, firstly, mortgage payment protection insurance (MPPI) is generally a free standing contract, which means that as long as you are eligible to claim the insurance company will make the payment regardless of who the mortgage company may be, however, you should read the terms and conditions of your contract.

You mention remortgaging and I would doubt that you will find a mortgage company that would be prepared to take over your existing mortgage whilst you were claiming MPPI and it is was unlikely that you are going to return to work in the immediate future; this is because MPPI pays benefit for a limited period of time, usually twelve months.

Next to consider is the shortfall in your current mortgage payment, you should speak with your lender to see what arrangements could be made so that you are not falling into arrears with your payments; for example, if you are on a repayment mortgage extending the term will bring the monthly costs down, or, you may be able to agree to move your mortgage to an interest only basis.

Finally, if you are permanently unable to work then you should see if you have the ability to make a claim under other policies you may have such as Critical Illness or Income Protection plans. Most government income support is means tested, however, you may be able to apply for benefits and you speak to your local benefits office.

If you have a question for Tony, go to the myfinances.co.uk Ask the Mortgage Expert section.

Or for more information or mortgage advice go to Mortgage Meadow.

Mortgage Meadow is an independent mortgage broker and is authorised and regulated by the Financial Services Authority.