As part of a mortgage loan contract, almost all banks and credit institutions require the subscription of borrower insurance. Supposed to guarantee the lending organization full reimbursement in the event of default by the beneficiary, this insurance directly impacts the cost of credit. But how much does it cost? How is the price of home loan insurance calculated? How to get the best rates while respecting the law? Our experts answer you.
Summary
TAEA and home loan insurance prices
An integral part of the total cost of a mortgage, loan insurance is part of the costs mentioned mandatory in the contract. Whether you opt for the group insurance offered by your bank or for a delegation of insurance, your proposal for a mortgage loan contract must therefore imperatively include the mention of the TAEA (Annual Effective Rate of Insurance).
In the same spirit as the APR (Global Effective Annual Rate) of credit, the TAEA makes it possible to directly obtain the overall cost of home loan insurance, ancillary costs including. To quickly compare two or more borrower insurance offers, all you have to do is refer to this rate.
How is the overall cost of your borrower insurance calculated?
Depending on the case, the calculation of the amount of the contributions for a loan insurance is carried out by applying the TAEA of the offer:
On the initial capital
In this case, the insurance rate is applied directly to the initial amount of the loan. The amount of the monthly borrower insurance contribution is then the same for the entire duration of the credit. This method of calculation is generally applied for group insurance contracts offered by banks.
On the remaining capital
Generally applied under an insurance delegation, this method of calculation consists of applying the insurance rate to the outstanding capital each month. The amount thus obtained is decreasing and therefore more advantageous for the subscriber.
For the same TAEA, the difference between the amounts obtained depending on the calculation method used can be very significant. Do not hesitate to compare the quotes of several insurers before making your choice.
Read also: Mortgage loan insurance: what you need to know
What are the elements used in the calculation of the mortgage loan insurance price?
Operating in free competition, insurers and banks offer borrower insurance rates that can vary a lot. Overall, these rates are in the range of 0.26% to 0.42%. For projects concerning a property purchase for rental purposes, the average rate applied is around 0.30%.
Several criteria are taken into account by insurers to set this rate. The main ones naturally concern the amount and duration of the loan, as well as the level of coverage taken out. In addition to these elements, the age, profession and state of health of the insured also come into play.
Read also: All you need to know about mortgage loan insurance
Impact of age on the price of borrower insurance
Depending on the age group in which you are, the rate offered by your mortgage insurer can vary a lot. Generally, the TAEA applied to a young borrower is lower than that applied to a senior borrower.
Mortgage insurance price and borrower’s state of health
Given the high average duration of home loan contracts, insurers are very careful about the health of the subscriber. Medical formalities are also required in this context. Naturally, the borrower’s insurance rate applied for a smoker is higher than for a non-smoker. Depending on the profile, the rates applied can actually double.
Depending on the occupation
If you practice a profession considered “at risk”, additional premiums may be imposed by your insurer.
How to get the best price for your home loan insurance?
In order to find the best offer to insure your mortgage, play the competition. Compare insurance rates directly and do not hesitate to use the services of a credit insurance broker
Specialists in negotiation, these professionals are responsible for obtaining the best rates and conditions from insurers for you. Thanks to their networks of partners, they offer you the possibility of reducing the amount of your contributions as much as possible, and therefore the cost of your loan for a real estate purchase.
Before signing your borrower insurance contract
Do you think you have found the most advantageous mortgage loan insurance offer for your profile? Perfect ! But before signing your contract offer, pay special attention to the following points:
- Deductible deadlines;
- Waiting periods;
- Warranty exclusions;
- The method of coverage in the event of a claim (compensation or lump sum);
- The age limit for the cessation of payment of benefits.
If in doubt about the interpretation of any of these clauses, do not hesitate to ask for additional information. If necessary, get assistance before signing the contract.
Read also: Why and how to establish a good real estate financing plan for the bank?
