It is impossible to get a mortgage loan without concluding an insurance contract today. However, despite the insistent demands of a number of banks, the borrowers are not obliged to insure all the risks of mortgage lending. Let’s try to figure out which mortgage insurance policies are compulsory and which ones can be waived, as well as how much each insurance will cost the housing loan borrower.
Mortgage insurance usually involves the following programs: insuring the property purchased on credit against the risks of loss or damage, borrower’s life and health insurance, title insurance (likelihood of the borrower losing the title to housing) and borrower liability insurance against mortgage loan defaults.
By law, only insurance of the mortgaged property, that is, an apartment bought on credit, is obligatory.
All other types of mortgage insurance can be carried out only at the request of borrowers. However, experts do not recommend neglecting insurance – mortgage lending is characterized by high risks. After all, the borrower borrows a large amount for several years, and no one can predict what will happen to him and his housing during this time.
Insurance of real estate acquired in a mortgage provides its protection against damage or destruction as a result of such risks 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 insure in favor of the lender, that is, the bank. Thus, if the apartment is, for example, severely damaged, the insurance company will pay the remaining amount of the loan to the bank. That is why, according to the law, the size of the sum insured should be equal to the loan amount (usually banks also take into account the interest on the loan when calculating the sum insured, adding 10% of its volume). However, it should be remembered that the deposited own funds (initial payment) will not be covered by insurance. Therefore, borrowers are often invited to insure the property at the rate of its full value. Such insurance will be more expensive, but the borrower will receive a guarantee of the return of the initial payment on the mortgage – then under the contract the beneficiary must be not only the bank, but also the borrower.
The cost of insurance is usually 0.09–0.2% of the sum insured and depends on the year the building was built, the technical condition of the apartment, the quality of finishing and other parameters. The important point is that as the loan is repaid, the debt to the bank, and therefore the insurance amount and annual insurance payments, decrease.
The next type of mortgage insurance offered to mortgage loan borrowers is the so-called title insurance. This policy protects against the risk of loss by the borrower of the ownership of housing – for example, if a mortgage transaction is invalidated. Title insurance is absolutely necessary, for example, if an apartment is purchased on the secondary market. At the same time, it is not necessary 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 “legal cleanliness” of the apartment, the maximum rates are used in the case of inheriting housing. The amount of the annual fee for title insurance, as opposed to property insurance,
Life and health insurance of the borrower provides that in case of permanent or temporary disability, as well as the death of the borrower as a result of an accident or illness, the insurance company will make payments on the loan. Thus, even in the worst case, if the borrower dies, the apartment will get his heirs without burdens. If there are several borrowers, the insurance payment in the event of the death of one of them is distributed in equal shares or according to his income in the total monthly income of the borrowers. The insurance amount is defined as the size of the loan, along with interest for its use. This type of mortgage insurance is the most expensive – the insurance premium varies from 0.3% to 1.5% of the sum insured per year and depends on the age and sex of the borrower,
Finally, the borrower’s 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 by the bank from the sale of the mortgaged apartment is not enough to repay the debt. Usually this type of insurance is used in the case of a low (10–30% of the property value) down payment for an apartment. The amount of insurance and tariffs for liability insurance of the borrower are determined by the bank and depend on the amount paid by the borrower as a down payment, as well as on real estate prices.
It should be noted that the purchase of each insurance separately will cost significantly more than the policy of the comprehensive insurance contract – it will cost the mortgage borrower 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. The amount of insurance payments will be recalculated and reduced annually in proportion to the decrease in the amount of the loan.
Voluntary compulsory nature
Although only property insurance is required by law, often banks, seeking to protect themselves from the risks associated with the non-return of cash, force borrowers to purchase other types of mortgage insurance. So, most of them are prescribed in the loan agreement that in case of refusal to purchase a comprehensive mortgage insurance contract, the borrower will have to pay a higher rate on the loan (the increase may be 1-3 percentage points, in some cases up to 6 p.) Therefore, in practice it turns out that it is more profitable to buy an insurance policy.
Where can one buy
Usually a mortgage loan borrower is offered to conclude an insurance contract with one of the companies that are partners of a bank. 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, AlfaStrakhovanie, VSK, ” SOGAZ, RESO-Guarantee, UralSib and other major insurers; Rosbank with Societe Generale Insurance, SOGAZ, Ingosstrakh, Rosgosstrakh and others). Thus, the client can only choose the appropriate offer by comparing the conditions of several insurance companies from the list offered by the bank. When choosing an insurance company for mortgage insurance, you should first of all consider the market leaders,