Is mortgage insurance compulsory?
Loan agencies, banks require the borrower to insure against death, sometimes work stoppage and disability in a home loan. If legally the insurance of loan is not obligatory, a banker will not lend money to the borrower who does not justify insurance covering at least the guarantee death for a rental real estate investment, and the guarantee Interruption Temporary of Work and Permanent Interruption of Work.
If the borrower’s income and creditworthiness so permit, the banker will not oblige the borrower to take out loan insurance, but it remains rare and exceptional and depends very much on your relationship with your banker. Bankers offer their home loan insurance, but know that subscribe to the loan insurance is not mandatory, you are free to subscribe to an external insurance delegation, without the bank has nothing to complain about. Banks can not increase the mortgage rate if you choose external loan insurance, thanks to the Lagarde law.
The compulsory mortgage insurance: The elements to know!
The obligation to take out loan insurance
When you want to make a mortgage, the law requires us to take out insurance to protect it: loan insurance (or insurance borrower). By protection, it is obviously to protect the bank from any payment default on our part. Thus, if we can no longer repay our loan for certain reasons (death, unemployment, inability to work …), the insurance will pay the reimbursements.
The quota, the grace period and the mandatory waiting period
Here are some terms to know before immersing yourself in reading a loan application file:
Quotite insurance ready
The quotients are the hedge rates of the loan. Example: A cut subscribes a real estate loan and decides to define the quotations like this: sir has a quota of 100%, and madam one of 60%. This means that in the event of the death of a gentleman, the insurance will reimburse 100% of the outstanding amount, and in case of the death of the lady, 60% of this amount.
Insurance almost always has a grace period for the guarantees it offers. This is the time between the loss and the start of the compensation. Insurance almost always has a grace period for the guarantees it offers. This is the time between the loss and the start of the compensation. Also, at the beginning of the implementation of the contract, a waiting period may be provided. This is the period during which the guarantees are not effective.
Also, at the beginning of the implementation of the contract, a waiting period may be provided. This is the period during which the guarantees are not effective. A recommendation: negotiate these deadlines to better distribute them at your convenience, such as reducing that in case of death to extend that in case of unemployment.
A recommendation of the insurance broker of cheap loan: study with vigilance the deadlines in order to provide you with better guarantees adapted to your needs.
Guarantees of compulsory loan insurance
The law requires that borrower insurance for real estate cover us for death and PTIA guarantees (total and irreversible loss of autonomy). However, if the borrower is an employee, it is strongly recommended to add to his contract the “unemployment” guarantee to cover himself in case of job loss due to economic redundancy, but also the guarantees ITT (Total Temporary Incapacity) and IPT (Total Permanent Disability) for purchase of a principal residence. These 5 guarantees cover the majority of claims.
Group insurance and individual insurances
Group insurance contracts are offered by the banks, who have negotiated them with insurance partners. They can be advantageous for profiles with no particularity or risk, for example a young borrower in good health. The collateral offered may not exactly match the one expected from the contract depending on the profile of the borrower, because the group insurance has a negotiated single rate for a typical borrower profile. Individual insurance is insurance taken out by the insured according to his profile. It can be with the lending institution or with another organization (see a delegation of insurance). It has the advantage of integrating the optimal cover for the borrower according to his file (medical, my also of his activities).
Delegation of insurance and change of insurance
The term “insurance delegation” means taking out borrower insurance from a company outside the company that will lend you the funds. Since the Lagarde law entered into force in 2010, the banks are obliged to give the future borrower a document summarizing all the information concerning his loan as well as the coverages requested for the insurance of the latter, so that if he desire, he can choose insurance in another organization. The bank has no right to refuse the delegation of insurance if the third party provides guarantees that are at least the same as those requested by the bank. Like all other types of insurance, according to the insurance code, it is possible to change the one that protects your loan. You can either renegotiate or terminate it if you want to buy one elsewhere. In the latter case, respect the deadlines specified in the contract. Finally, do not cancel your insurance until you have a new one!
Your rights in compulsory loan insurance
From a legislative point of view or agreements, there are two laws and one convention that concern the insurance of real estate credit: Law LAGARDE of 2010: This text obliges the bank to give to the future borrower a leaflet including all the elements loan and insurance for the latter. The lending institution does not have the right to refuse the principle of delegation of insurance if the guarantees of the insurance taken out by an external body are at least the same as those specified in this notice. Finally, the lender is also not entitled to review its loan offer, for example by reducing the rate, in return, for a subscription by the client of the insurance offered by the institution. . MURCEF Act of 2001: This law prohibits, inter alia, tied selling of insurance and loans. These two services must be the subject of two separate offers, and can not be included in a “pack” or linked to the subscription of the other. 2007 AERAS Convention, updated in 2011: This agreement was signed by federations of insurers, banks, as well as consumer associations in the presence of the Minister of Economy and Finance. Its purpose is to facilitate access to the loan to people presenting what is called an aggravated risk: dangerous occupations, serious pathology …
Achieve savings despite the obligation to ensure
Thanks to the LAGARDE law of 2010, you can choose loan insurance from an organization external to the one that lends you the funds. In order to take full advantage of this possibility, it is recommended that the future borrower, once he has received his notice (see above) to solicit a broker specializing in mortgage insurance. Brokers, insurance professionals, offer several benefits such as:
- save time: they already have the prices charged by the main insurers, so you do not have to contact them one by one. In addition, the broker takes care of all the administrative formalities.
- Find a more interesting price: the prices they have are prices negotiated with insurers, and therefore more advantageous than if you will negotiate yourself.
- Offer a multi-card offer: from their list of partners, brokers can find insurance even in cases where it is difficult to find one, or at the price of a premium. This is not unusual for senior borrowers, smoking borrowers, people practicing a dangerous profession such as firefighters, or a risky sport.