Getting a mortgage without entering into an insurance contract is impossible today. However, despite the insistent demands of a number of banks, borrowers are not required to insure all risks of mortgage lending. Let’s try to figure out which mortgage insurance policies are mandatory and which can be waived, as well as how much each insurance will cost the home loan borrower.
Mortgage insurance usually implies the following programs: insurance of property purchased on credit against the risks of loss or damage, life and health insurance of the borrower, title insurance (the probability of the borrower’s loss of ownership of the home) and liability insurance of the borrower against default on the mortgage loan.
Under the law, only insurance of mortgaged property, that is, an apartment bought on credit, is mandatory.
All other types of mortgage insurance can be carried out only at the request of borrowers. However, experts do not advise neglecting insurance – mortgage lending is characterized by high risks. After all, the borrower takes a large sum of loans for several years, and no one can predict what will happen to him and his housing during this time.
Insurance of real estate purchased in a mortgage provides its protection against damage or destruction as a result of risks such as fires, bays, explosions, accidents, natural disasters, illegal actions of third parties and other risks, as a result of which the price of an apartment may decrease. In this case, the property will have to be insured in favor of the lender, that is, the bank. Thus, if the apartment is, for example, badly damaged, the insurance company will pay the remaining loan amount to the bank. That is why, according to the law, the amount of the insured amount must be equal to the amount of the loan (usually banks in calculating the insured amount also take into account the interest on the loan, adding 10% of its volume). However, remember that your own funds (down payment) are not covered by insurance. Therefore, often borrowers are invited to insure the property based on its full value. Such insurance will cost more, but the borrower will receive a guarantee of the return of the down payment on the mortgage – then under the contract the beneficiary should be not only the bank, but also the borrower.
The cost of collateral insurance is usually 0.09-0.2% of the sum insured and depends on the year of construction of the building, the technical condition of the apartment, the quality of decoration and other parameters. An important point is that as the loan is paid, the debt to the bank, and therefore the insured amount and annual insurance payments are reduced.
The next type of mortgage insurance offered to mortgage borrowers is the so-called title insurance. Such a policy protects against the risk of the borrower losing ownership of housing – for example, if a mortgage transaction is declared invalid. Title insurance is absolutely necessary, for example, if the apartment is purchased on the secondary market. At the same time, there is no need to insure the title for more than three years, since a real estate transaction can only be challenged during this period. The cost of title insurance can range from 0.25-0.5% per year, depending on the bank’s assessment of the “legal cleanliness” of the apartment, the maximum tariffs are used in case of inheritance of housing. The amount of the annual contribution for title insurance, in contrast to property insurance,
The life and health insurance of the borrower provides that in the event of permanent or temporary disability, as well as death of the borrower as a result of an accident or illness, payments on the loan will be made by the insurance company. Thus, even in the worst case, if the borrower dies, the apartment will go to his heirs without burdens. If there are several borrowers, then the insurance payment in the event of the death of one of them is distributed in equal shares or in accordance with its income in the total monthly income of the borrowers. The insurance amount is defined as the size of the loan, together with interest on its use. This type of mortgage insurance is the most expensive – the size of the insurance premium varies from 0.3% to 1.5% of the insurance amount per year and depends on the age and gender of the borrower,
Finally, borrower liability insurance against the risk of non-payment of a loan implies protecting the interests of the bank in case the borrower cannot pay the mortgage and the amount received from the sale of the mortgaged apartment is not enough to pay off the debt. Typically, this type of insurance is used in case of low (10-30% of the value of the property) down payment for the apartment. The amount of insurance and tariffs for borrower liability insurance are determined by the bank and depend on the amount paid by the borrower as a down payment, as well as on property prices.
It should be noted that the purchase of each of the insurance separately will cost significantly more than the policy of a comprehensive insurance contract – it will cost the borrower a mortgage loan of 0.5-1.5% of the loan amount. For example, insurance with a mortgage loan of 4 million rubles in the first year will cost from 20 thousand to 60 thousand rubles, and with a loan of 6 million rubles – from 30 thousand to 90 thousand rubles. Annually the size of insurance payments will be recounted and reduced in proportion to the decrease in the amount of the loan amount.
Although only real estate insurance is mandatory by law, often banks, in an effort to protect themselves from risks associated with non-refundable funds, force borrowers to purchase other types of mortgage insurance. So, most of them prescribe in the loan agreement that in case of refusal to purchase a complex mortgage insurance contract, the borrower will have to pay an increased loan rate (the increase may amount to 1-3 percentage points, in some cases up to 6 percentage points). Therefore, in practice, it turns out that it is more profitable to buy an insurance policy.
Where can one buy
Typically, a mortgage borrower is asked to enter into an insurance contract with one of the bank’s partner companies. Most banks cooperate with several insurers at once – as a rule, these are large companies that have successfully worked in the market for many years and have extensive experience in insuring mortgage risks (for example, VTB 24 cooperates with VTB Insurance, Alfa Insurance, VSK, “ SOGAZ ”,“ RESO-Garantia ”,“ UralSib ”and other major insurers; Rosbank – with“ Societe General Insurance ”,“ SOGAZ ”,“ Ingosstrakh ”,“ Rosgosstrakh ”, etc.). Thus, the client can only choose a suitable offer by comparing the conditions of several insurance companies from the list offered by the bank. When choosing a mortgage insurance company, you should first consider market leaders,