Real estate credit: what is the cost of borrower insurance?
The role of a borrower insurance is to cover the repayments of the mortgage, in case of death and disability, or even loss of employment. If it is not legally binding, no bank will make a loan offer, which does not cover at least the first two risks. However, this does not mean that it should not be negotiated at the fairest price : for this, we must look at its rate and its weight on the total cost of credit. Explanations.
What is its rate and what cost does it represent on the entire credit?
The rate of the borrower insurance
Defined by the banks themselves, the insurance rate is based on the amount of the credit, the acquisition and the borrower’s profile (age and state of health).
For example, a rate of 0.40% on a loan of € 200,000 implies an insurance payment of € 800 per year, all along the loan. That is 66.67 € per month.
If, traditionally, this rate is built on the total amount borrowed , it is possible to have a rate applied on the capital remaining due . In other words, the weight of insurance will decrease over repayments: this is a declining loan insurance.
A priori very attractive, it is not necessarily interesting in reality: indeed, often its weight, at the beginning, is significantly higher than for the other formula , at a time when monthly payments are the most difficult to honoring … Not to mention that any change in credit can reduce the interest of this degressive insurance.
The cost of borrower insurance
It is also worth looking at the cost of insurance in relation to the total cost of credit , to be able to measure its weight … and better negotiate.
If we take the example of a rate of 0.40% on € 200 000, for a credit subscribed for 20 years, the cost will be € 800 per year, a total of € 16 000, which is not negligible.
Why do we have to look at these two criteria, beyond the guarantees?
Built from bank-specific grids, borrowing insurance offers issued must be systematically compared and negotiated, as they can vary widely from one organization to another. Through the criterion of the rate and that of the cost, you have the first data of comparison , with equal or similar guarantees, naturally .
Now, the sub-annual cancellation of the borrower insurance is possible: today, you can realize great savings on the total cost of your credit, thanks to this faculty to be able to change insurance easily – on each anniversary date of Your contract.
As a reminder, it is also possible to change it in the first year following the signature of the loan offer (see Hamon law).
To learn all about the mechanisms of credit insurance, download our free guide: after reading, you will know the levers on which it is possible to act to better determine whether you need to change or not.