Why negotiate loan insurance and not just the rate in a mortgage?
Loan insurance more expensive than the interest rate?
Is insurance designed to cover a home loan becoming more expensive than the interest paid to the lender? In any case, this is what some financial institutions say after this scenario has started to appear.
However, the situation is far from surprising given the development of interest rates. If a rise was well predicted at the end of 2018, it was finally the opposite that occurred in 2019. Rates fell once again to reach, on several occasions, thresholds never seen before. The historic record, recorded in November 2016, fell for the first time in May 2019 with an average rate at 1.29% and each new month that followed pushed the floor a little further to reach 1.17% in August latest.
Asked whether rates will continue this incessant but welcome reduction for borrowers, the banks believe that the floor is not far away. Especially since professionals are starting to tighten the credit valves and tighten their conditions in order to prevent solvency risks in the years to come.
In the meantime, the home loan remains cheap to the point that some files include a cost of borrower insurance higher than the financial margin earned, as interest, by the bank. This is all the more remarkable for senior credit applications where insurance premiums rise when it comes to covering older people. It is for this reason that the negotiation phases with the bank should not focus on the interest rate alone, but also on the insurance rate in order to prevent any tariff overrun once the the entire capital is reimbursed.
How to get cheaper home loan insurance?
To successfully negotiate loan insurance and get the best price, it is ideal to compete. Indeed, the delegation of insurance in a mortgage allows the borrower to choose his insurer. The contraction of a cover is therefore no longer compulsory with the organization that formulates the loan offer. The only requirement for the insured is to comply with the conditions listed in the European Standardized Information Sheet (FISE) provided by the lending bank. When a contract proposed by a competitor meets the conditions, then it can be signed to validate and guarantee the mortgage.
Finally, the delegation of credit insurance can start during the repayment phase. To start the procedure and change the contract to lower its price, you just have to notify the bank at least 2 months before the anniversary date of the signing of the loan offer. At this time, it will also transmit the FISE so that the borrower can find suitable borrower insurance.