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Level Term
Life Insurance

Life cover for your mortgage

Getting started with level term life insurance

Protecting your loved ones financially is one of the most important steps when planning for the future. Level term life insurance offers a simple, reliable way to ensure your family gets the financial support they need should you die within your mortgage term. 

What is level term insurance?  

Level term insurance is a type of life cover that provides financial protection for your loved ones by paying out if the life assured passes away during the policy term. Therefore, each person responsible for the mortgage requires protection. The payout you’d receive from your insurer stays the same throughout the policy, no matter when a claim is made.

This means you or your loved ones could use the money to help pay off your mortgage or other debts.

Because the payout doesn’t reduce over time, the premium for this type of insurance usually costs more than decreasing term cover. But it could still be the right choice for you. 

How does level term insurance work?  

Level term insurance covers a fixed sum equal to the mortgage balance, typically used alongside an interest-only mortgage as the balance does not reduce over the term neither does the sum assured. 

If a valid claim is made during the policy term, your chosen beneficiaries would typically receive the full payout amount. The policy does not have a ‘cash-in value,’ so it simply finishes at the end of the term.

You can also combine this insurance with other types of cover, like Critical Illness Cover and Income Protection, to give you and your family even more financial security.

How does level term insurance work with your mortgage? 

Level term insurance is a good option for many people, but especially if you have an interest-only mortgage. With this type of mortgage, your monthly payments only cover the interest, not the capital loan amount.

That means when the mortgage ends, you still owe the full amount. Level term insurance helps by providing a fixed payout that covers this  if you or another policyholder passes away during the policy term, so your family won’t be left with the debt.

You may choose not to redeem your mortgage with the policy benefits. The payout from the level term insurance could also be used to:

  • Provide income replacement 
  • Fund future expenses like education or childcare
  • Leaving a fixed inheritance
Speak to an expert

Frequently asked development finance questions…

Do I need planning consent?

You’ll find it easier to secure property funding with planning permission already granted. Your lender will want to see all the related documentation as part of the application.

Lenders may make an exception about planning consent if you have development experience and have completed several successful projects. However, they will need proof that you’ve applied for planning permission at the point of application.

Got a question?

How long are development finance terms?

The terms for property development finance terms are usually 12 to 24 months, but will depend on the size and scope of the project. 

We work with many property development lenders and financial institutions. This helps us find the best match for the project.

Got a question?

Do I need planning consent?

While there are no real guidelines for development finance interest rates, a good benchmark starts from around 7.5%. 

Development applications are assessed on a case-by-case basis and are priced according to the strength of the development proposition and you, the borrower. 

Our experts have access to the whole development finance lender market and will negotiate the best rate with the most suitable lender for your project.

Got a question?

Additional fees for property development finance

There are several costs and professional fees to consider when applying for property development finance; however, unlike off-the-shelf products, actual fees applied and fee scales are not set in stone but are likely to include some or all of those listed below.

Arrangement fees

Also referred to as a facility fee, lenders charge these fees for arranging the loan, typically priced at 1-2% of the loan amount.

Exit fees

The fee payable to the lender to close the loan facility. Some lenders do not charge exit fees at all, but many do.

Some lenders charge an exit fee as a percentage of the loan amount. Others (and these are the fees you must look out for) base the fee on a percentage of the gross development amount. This can make a considerable difference to what you repay, so don’t be fooled into taking what looks like a more competitive rate without doing the sums first.

Currently, exit fees on development finance cost in the region of 1-2%.

For example:

A developer owns outright land worth £500,000. They then borrow £800,000 to build four detached houses, and at the end of the project, the Gross Development Value is £1.8 million. 

- 2% exit fee based on the loan amount: £16k

- 2% exit fee based on GDV: £36k

This shows the importance of understanding the entire deal. Contact one of our brokers if you have any questions.

Valuation fees

As part of the application and risk assessment process, lenders will instruct a surveyor to place a detailed valuation on the development. The scale of these fees will depend on the size of the project.

If the project is extensive, you may also have to pay a monitoring surveyor or architect to confirm that the project has attained a certain standard as the build progresses.

Lenders often use this system to control the way they draw down funds.

Broker fees

These are the fees brokers charge for finding a suitable lender, negotiating a price and getting you a suitable, formal loan offer. All brokers charge differently.

At MFB, we typically charge between 0.75% and 1% of the loan amount, depending on your case’s complexity. We usually only charge fees if we successfully get you a formal loan offer.

We may also charge an administration fee, but we will always tell you exactly what you can expect to pay upfront. We accept payments by debit and credit cards.

Interest

The monthly interest payments on the loan will depend upon the rate you are offered and be based on the amount of funds released. The monthly interest payments will increase as the development progresses and more funds are released.

In most cases, the interest is “rolled up”, which means that instead of paying it monthly, it is added to the outstanding principal amount – hence the term “rolled up”. Interest will then accrue on the total amount outstanding, and whilst the loan size increases, it does ease the pressure and cash flow on the borrower during the build.

Professional costs

In addition to paying surveyor valuation fees, you will likely have to use the services of other professionals during the project, including architects, quantity surveyors, solicitors and project managers. Often, these fees can be included in the loan.

Contingency fund

Most developers set aside a contingency fund - usually around 10% - to pay for unexpected costs.

Got a question?

What are the benefits of choosing level term insurance?

There are several reasons why level term insurance might be the right choice for you:

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Do you need life insurance for your mortgage?  

While life insurance isn’t a legal requirement for getting a mortgage, it is advisable. If you’re the primary income earner or split the mortgage repayments with a partner, level term insurance ensures no one will be left struggling to pay the loan.

If you have an interest-only mortgage, where the loan amount doesn’t decrease over time, level term insurance ensures the full loan can be repaid.

How much does level term insurance cost? 

The cost of your policy will depend on factors such as your age, health, lifestyle, policy amount and term.

How do I choose the right life insurance policy?

Speak with one of our advisers, who will assess your needs and circumstances and can recommend the most suitable cover for you.

Choosing the right life insurance

An alternative option to level term life insurance is decreasing term insurance. A smart, affordable way to protect your mortgage. As your mortgage balance reduces, so does your cover, so you only pay for what you need.

More about decreasing term insurance

Stamp Duty Calculator

Work out how much Stamp Duty you’ll pay with our easy-to-use calculator. It calculates the amount due by individuals and corporate vehicles (Limited Companies) on first-home, second-home and BTL investment purchases. 

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We've got you covered for all your mortgage protection needs. Read more about the insurance products available to you. 

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