Deciding to acquire a property is not a decision that is taken lightly. On the verge of launching, people are asking themselves several questions. This, especially since real estate investment usually involves a mortgage. To obtain credit at the bank, there are a number of requirements that must be met. Indeed, banks want to ensure the actual repayment of the loan to be granted. One way for you to get this loan is to take out mortgage loan insurance. This insurance comes as a guarantee that reassures the payment of your monthly payments, in addition to protecting you and your entire family. Discover in this article the different characteristics of a mortgage loan insurance and how to choose it.
I- How to secure your mortgage with real estate loan insurance
A mortgage loan insurance is a contract to which you subscribe and which ensures your financial coverage from creditors against the risks of life. These include, but are not limited to, death, disability and work stoppage.
1. The characteristics of a home loan insurance
Long-term loans such as mortgages can cause repayment difficulties. Subscribe to a mortgage loan insurance, is a guarantee with your bank. This specificity makes this insurance an obligation for all borrowers. Indeed, home loan insurance is essential to optimize your chances of obtaining credit.
Real estate loan insurance has an advantage that benefits both creditors and debtors. While it assures the creditor that it will recover the loan, it secures the borrower because it requires the insurer to repay its shares if it can not meet its commitments.
Whether it is a case of unemployment, personal or medical, the credit institution can contact the insurer to recover its funds. Real estate loan insurance thus covers most disabilities, disability at work, or death. It is up to you to make sure that the insurance to which you subscribe covers its different cases.
To subscribe to a mortgage loan insurance, you must disburse an amount equivalent to the requested credit. However, you will pay in installments over several months, depending on your ability. The rate is set at the signing of the contract and depends mainly on the profile of the subscriber? Thus, it will generally be higher for a senior than for a young person.
2. What is the coverage provided by the property loan insurance?
The advantage of a mortgage loan insurance is based on the security it offers. As a beneficiary, you are protected from possible lawsuits or litigation in the event that you are unable to comply with the terms of your contract with the creditor. This security extends not only to you, but to your entire family. You should also be aware that the bank makes a clear difference between Total Temporary Incapacity (TTI) and Total Permanent Disability (TIP).
2.1- Case of a dismissal
Loan insurance covers you in case of dismissal, if you were on a permanent contract. On the other hand, the break-up of a fixed-term contract, unemployment, resignation, the end of a trial period and early retirement are not taken into account. Added to this, you must know that your insurance is limited in time. To know the duration of your home loan insurance policy, consult the conditions of the contract.
2.2- Case of a death
In the event of death, the payment of the remaining due is covered by the mortgage loan insurance. If it was a subscription between several people, only the shares of the deceased person will be fully reimbursed. These shares are usually set when the contract is signed. However, cases of suicides and high-risk sports are generally subject to special clauses. You must pay attention to its details of the terms of the home loan insurance contract.
2.3- Case of a disability
If by an accident of life you find yourself unable to work, you are covered by real estate loan insurance. Payment of your remaining dues is covered, as in the case of a death. This is especially true in case of a total and irreversible loss of autonomy (PTIA). However, if the disability is partial, you must be attentive to the extent of coverage. You must check the age limit at which the guarantee ends and the degree of disability covered.
II- How to calculate the cost of your home loan insurance?
You have the possibility to subscribe to a mortgage loan insurance individually, at an insurer of your choice. However, you must know how to choose the latter. The cost of a mortgage loan insurance is spread over the duration of your loan. Which implies that you will have to pay an insurance premium with your monthly mortgage debt.
1. Calculation of the mortgage loan insurance rate
The price of home loan insurance depends on each organization. It depends on the degree of coverage, the type of credit contracted, the age of the subscribers and the amount of the loan. It also takes into account the duration of the loan, the credit rate, your state of health and, if applicable, the sport practiced.
To calculate the premium of home loan insurance, you must apply a percentage on the amount borrowed or on the amount remaining due. Depending on the age and health status of the borrower, the mortgage loan insurance rate varies from single to double. The proportion of each of the insured is 100%, it is possible to increase it to 200% without the rate varies.
Consider the case where you take a mortgage of € 200,000 at the fixed nominal rate of 3.5 over a period of 20 years, with a credit insurance rate of 0.4%. Two cases are available to you:
- The premium is based on the borrowed capital. In this case, you will perform the calculation in this way (mortgage loan x credit insurance rate) / 12 months. In our example, this rate will be (200,000 x 0.4%) / 12 = 66.67 euros per month.
- When the premium is based on the outstanding capital, the first month, it will be 66.67 euros. The following month, if the borrower has refunded 600 euros of are bank credit, the new rate will be (199,400 x 0.4%) / 12 = 66.48 euros. You will apply this process until the total repayment of your loan. This is called degressive contributions.
The rate and cost of borrower insurance
If you calculate it with the values of the previous example: mortgage loan = 200 000 €, nominal rate fixed at 3.5% over 20 years with borrower insurance rate at 0.4%:
- First case: The rate applies to the borrowed capital. In this case, the insurance will cost € 16,000 over the term (€ 200,000 x 0.4% x 20 years = € 16,000).
- Second case: The rate applies to the outstanding capital. The insurance will cost 8140 € over time by performing the various degressions.
2. How to choose your mortgage loan insurance?
To properly choose your mortgage loan insurance, you must focus on the rate that offers. When you take out a loan from a bank , they always offer you an insurance offer, called group insurance . However, you are not forced to accept it. You can instead choose to purchase insurance from an organization with a higher level of coverage. This is called a delegation of insurance .
The loan insurance contract offered by the insurance delegation generally offers lower rates than those offered by the banks. The group insurance offered by the banks provides shared coverage. On the other hand, the delegation of insurance offers a personalized coverage and therefore cheaper rates.
Group insurance rate of a bank
The latter calculates the amount of the monthly premium contracted during the loan by applying the Annual Effective Rate of Insurance (TAEA) on the starting capital borrowed. Thus, you will have to pay the same amount each month until the end of your loan. The group insurance rate is based on the principle of pooling risks. It can be as follows:
- 0.3% per year for financing rental investments. This, regardless of age.
- 0.276% per year for those under 35 , for a primary or secondary residence.
- 0.42% per year for over 35s , for a primary or secondary residence.
Rate of insurance delegations
The insurance delegation revises this amount each year by applying the TAEA on the outstanding capital. As a result, your insurance premiums vary gradually decreasing until your loan is fully repaid. The scale submitted by the insurer is done according to its own criteria. It is therefore difficult to predict the contribution rate before having answered the questionnaire to which they are bidding you. However, their criteria take into account the subscriber profile:
- Smoker or non-smoker
- Practicing a risky sport
- Medical background
So, to qualify for the best home loan insurance rates, you usually need to be non-smoker, healthy and practice a less risky sport. However, in the case of trades such as police officers and the military, they benefit from preferential borrowing insurance underwritten by their professional mutual.
An indispensable thing is also to check the conditions of exclusions. These are situations that are not covered by the proposed real estate loan insurance. In some cases, these exclusions may be redeemed if you agree to pay an additional insurance premium. Also check if the cover is also valid abroad.
3. Principle of the quota and the calculation of the borrower's insurance
The insurance portion means a distribution of the cover between borrowers and corresponds to the share of capital to guarantee. In a couple configuration, the quota is determined by the monthly salary of each. It can be 50% per person or vary from one partner to another, the sum being equal to 100% of costs. In case of illness or death, only the monthly payments of the spouse concerned will be covered by the mortgage loan insurance. This is called 100% coverage of the quota.
However, it is possible to subscribe to a quota that covers you entirely. In the case of a couple, you can choose to insure your mortgage insurance up to 200% of your quota. As a result, the insurer will pay 100% of the remaining capital due to the survivor. In addition, it will cover all the monthly payments in case of illness or accident affecting one of the two.
Note that the quota does not affect the rate of mortgage loan insurance, but just the amount of contributions. So, a double insurance at 200% of quota will double the amount of contributions.
III- How to renegotiate your home loan insurance
Loan insurance represents about 31% of the total cost of the loan. This is an important variable to consider when negotiating insurance. Under this observation, you may want to renegotiate your insurance in order to make more savings. For this purpose, there are 3 important levers allowing you to review your borrower insurance.
1. The laggard law
This a law was created in 2010 and gives the opportunity to the borrower to choose the mortgage loan insurance of his choice. Thus, you are completely free to take out your mortgage in one institution and to subscribe to the mortgage loan insurance at another. However, the majority of banks refuse to grant a loan with a delegation of insurance. In addition, it appears easier to negotiate your loan at the same time as your home loan insurance.
2. The Hamon law
The Hamon law, which came into force on March 17, 2014, aims to improve the protection of consumers and their relations with professionals. It allows the borrower to obtain a more competitive contract that is better suited to his personal situation. Banks are thus obliged to specify clearly the information on the guarantee levels of the mortgage loan insurance. You can therefore easily compare the various offers and thus obtain the most competitive economic contract.
In addition, this law gives you the opportunity to change mortgage insurance insurance within 12 months of signing the contract. You have the opportunity to search for and subscribe to a more advantageous contract and to cancel your contract without penalty fees.
3. The Bourquin Law
In effect since February 2017, it is an order on consumer credit contracts of the Sapin law. It allows you to cancel your insurance each year. This measure concerns loans taken out from the date of publication of the law.
In the end, we can say that subscribing to a mortgage loan insurance is an excellent choice for you and your family. It is now up to you to use all the information in this article to subscribe to insurance that best suits your condition.
To go more law, I suggest you to follow this video: How to get your mortgage (former banker)