When you realize your dream of homeownership, it is tempting to rely on your lender to take out mortgage insurance. But, it often turns out to be more expensive. Find out everything you need to know about this insurance, which can now be changed every year: great savings in prospect!
What is mortgage insurance?
Because a real estate loan runs over many years, banks have imposed the subscription of mortgage insurance to cover the risk of non-repayment of the loan, whatever the reasons: illness, divorce, unemployment and accidents of all kinds that can occur in the life of borrowers. Compare the different insurance rates and options.
Insurance made compulsory
Until 2010, banks could impose the borrower insurance of their choice. It is therefore difficult to refuse if you wanted to obtain financing to make your real estate project a reality. However, since the Lagarde law, but especially since the Hamon and Bourquin laws, the borrower is completely free to decline the proposal of his bank and even, to change mortgage insurance to adopt individual insurance, if he had accepted his banker’s first.
However, if this choice does not need to be justified, certain criteria must be met to proceed with a termination of borrower insurance.
A balance of power suppressed by the legislator
Banks still offer group contracts to their customers. These contracts are less advantageous than individual insurance because the banks get paid on these contracts. And, the margin achieved is particularly interesting for them. This is why the legislator has encouraged competition on the subject of mortgage insurance. Thus, borrowers are no longer at the mercy of their financial organizations, which until then could make the granting of a loan conditional on the subscription of this famous insurance.
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Other causes leading to termination of mortgage insurance
The high cost of the first contract is not necessarily linked to your wish to change mortgage insurance. Indeed, there are other reasons that could explain this choice.
Renegotiation of the mortgage
When renegotiating a mortgage, started to benefit from more advantageous rates, an amendment to your new loan offer can also relate to mortgage insurance: you kill two birds with one stone! But, on this occasion, do not hesitate to contact an online insurance broker to maximize your chances of finding the best insurance contract.
You have not succeeded in renegotiating your mortgage in an advantageous manner and you have decided to change banks to benefit from a more advantageous rate than that offered by your current contract. On this occasion, your original insurance is automatically terminated. Before subscribing to another, be sure to study the prices and guarantees offered using, in particular, an online insurance comparator.
Change of share
When a mortgage is taken out by at least two people, it is possible to change the share of the capital insured by the borrower, with however the risk of seeing an additional premium added.
Mortgage insurance: a hassle for seniors
It should be noted that while banks appreciate lending money to people over 65, through short-term “senior credit” offers – because this target generally has a good contribution, it does not spend much and keeps its accounts perfectly – mortgage insurance is generally a brake on the granting of the loan if it is requested from the bank. However, it is possible to purchase a policy with any insurance policy which, in any case, will charge more as the risk of death or disability increases. That is why it is particularly recommended to go through an online insurance broker who can find the most suitable contract at the best price.
How to change mortgage insurance
Depending on whether you terminate your mortgage insurance contract before its first-anniversary date or after, the terms differ.
Termination before the first anniversary of the borrower insurance contract
Since the Hamon law, it is possible to change your mortgage loan insurance free of charge, subject to the following conditions:
- the change must be made within 12 months of the acceptance and signing of the mortgage offer;
- the new contract must present guarantees equivalent to the original contract;
- the request for termination of the original contract must respect a 15-day notice and be sent, with the new insurance contract taken out in advance, by registered letter with acknowledgement of receipt to the bank.
Upon receipt of the request for termination of mortgage insurance, the bank is required to respond within 10 working days. If the banking organization does not respect this deadline or if it unjustifiably refuses your request for termination, it may be sentenced to an administrative fine of 3,000 euros.
Termination after the first anniversary of the mortgage insurance contract
Since 1 st January 2018 and the entry into force of Bourquin law, which confirms the principle of annual termination of loan insurance, it is possible to change mortgage insurance on each anniversary date of the contract. Possible savings each year, therefore. However, if the process is completely free, it requires compliance with the following conditions:
- the new mortgage insurance contract must present guarantees equivalent to the original contract;
- the request for termination of the original contract must be sent, with the estimate relating to the new contract desired, by registered mail with acknowledgement of receipt and respect a 2-month notice.
Please note: the presentation of the quote to the banking organization is really compulsory. Without it, the bank cannot assess and validate the equivalence of guarantees. It can therefore refuse the termination of your current contract.
But, if you have respected all the conditions, it is obligated to respond to you within 10 working days. In the event of non-compliance with the latter or in the event of an unjustified refusal, it may be sentenced to an administrative fine of 3,000 euros.