Credit insurance and loan renegotiation immo
The borrower is free to subscribe the mortgage loan insurance with his bank (called ” group insurance “) or a competing organization (called ” insurance delegation “). Generally a delegation of insurance allows to benefit from a better tariff offer.
In case of renegotiation of the mortgage
The borrower insurance is normally subscribed for the same duration as the mortgage it covers. If the borrower decides to renegotiate his current home loan in order to obtain a better interest rate or shorten the duration of his repayment, the mortgage insurance accompanying him will also be renegotiated, that is to say to say that a new contract will be concluded. In this context, the borrower can benefit from a better loan insurance offer by, for example, delegating.
Two hypotheses are possible in case of early repayment of the mortgage loan (through renegotiation) concerning the future of the borrower insurance. It all depends on the method of calculating the premium negotiated in the contract:
- the premium (contribution) is calculated on the initial capital borrowed;
- or it is calculated on the outstanding capital.
In the first case , the amount of the monthly contribution is constant and independent of the interest rate applied, which does not entail any increase in the premium when renegotiating the mortgage.
In the second case , the amount of the contribution is degressive, that is to say that it decreases in parallel with the decrease in the capital remaining due as the loan is repaid. The premium therefore depends on the negotiated interest rate, resulting in an increase (at most 3% of the outstanding capital at the time of the renegotiation). Other fees, such as fees, are also to be considered.
The new borrower insurance contract concluded with a competing insurer, however, must provide a level of guarantees equivalent to (or greater than) the group insurance offered by the bank that grants the mortgage. Its duration will be fixed on that of the new loan. The rate of borrower insurance will also depend on the state of health, the age, and the profession of the borrower, in addition of course the borrowed capital and the repayment term of the mortgage.
The principle of borrower insurance
In theory, the borrower insurance is not a legal obligation, that is to say that it is not required by law to access the mortgage . In practice, however, banks impose it, and generally even refuse any loan application if the candidate does not subscribe.
Indeed, by granting a mortgage and thus lending a relatively considerable amount of money to the individual, the bank takes a financial risk , namely that not to be repaid the loaned capital. To protect itself from this risk, it therefore requires the borrower to give him certain guarantees regarding the repayment of the loan. This is the mission of the borrower insurance. The insurer will pay the monthly loan repayment if the borrower is unable to do so. At the same time, the borrower’s insurance protects the borrower and his / her family from possible personal bankruptcy caused by this heavy debt, since repayment of the credit can be passed on to the beneficiaries of the borrower, in the event of death, for example.
The borrower insurance must, however, include mandatory basic guarantees, included in all loan insurance contracts, regardless of group insurance or delegation. These guarantees are threefold: in the event of death (or loss of total and irreversible autonomy), in the event of incapacity for work and in the event of permanent disability (partial or total).
The borrower can also opt for optional guarantees, such as job loss. But beware, according to insurers, waiting periods or exclusions may be included in the contract, just as the degrees and natures of various types of disability and disability vary from one insurer to another.