Mortgage insurance is necessary when buying property on credit. When issuing a loan to a borrower, banks set an additional requirement - the purchase of a mortgage insurance policy.
The Federal Law "On Mortgage (Real Estate Mortgage)" requires mandatory property insurance against damage and destruction. When issuing a loan, many banks insist on additional or comprehensive insurance to minimize their own risks.
Why do I need insurance?
Mortgage - a loan for a maximum period at a minimum percentage. Therefore, banks seek to reduce the risk of default on debt and offer comprehensive mortgage insurance. The object of property insurance is a pledge, that is, an apartment. But for complete protection, banks prefer that the client insure their life and health, as well as the risk of losing ownership.
For customers who have refused additional policies, often increased interest rates are provided. But most often, borrowers themselves understand that everything happens in life, and voluntarily conclude additional life and health insurance contracts .
As for title insurance, it applies not only to housing purchased on the secondary market, but also to new buildings. In practice, there are known cases of problems with previous owners of apartments, and double sales of apartments under construction. The new owner only needs this type of insurance for the first 3 years, before the expiration of the limitation period for contesting real estate transactions.
The specifics of mortgage insurance
Mortgage insurance has some features. The contract with the insurance company is in favor of the lender, that is, the beneficiary, who will receive the insurance indemnity, is the bank, not the borrower. Therefore, the insured amount, as a rule, corresponds to the size of the loan.
The amount of debt is gradually reduced, and accordingly the cost of the policy is reduced. When an insured event occurs, the bank receives a reimbursement in the amount of the loan issued, and the homeowner loses funds invested independently, including the initial payment. To avoid this, you can draw up an insurance contract for the full cost of the apartment. Then its owner will become a beneficiary in its part of the insurance amount.
Such conditions are offered by many companies, including VTB Insurance. Mortgage insurance can be a protection for both the bank and the borrower.
The benefits of lending
First of all, mortgage insurance protects the bank from losses that may arise due to default by the borrower of its obligations. This plays a special role in situations where the sale of collateral is impossible or does not cover the entire amount of the debt.
Thanks to the existence of insurance, a mortgage becomes available to more people at a reduced percentage.
Property insurance
Mortgage insurance primarily involves the protection of collateral. In this case, the object of insurance may be structural elements and the interior decoration of the premises.
One of the major players in this market is Rosgosstrakh. Mortgage insurance in this company includes the widest list of possible insured events. Usually it is a fire, explosion, flooding, lightning strike, natural disaster, unlawful actions of third parties, structural defects and so on.
Life insurance
Some banks insist on borrower life and health insurance. Such insurance includes the following risks:
- temporary loss by the insured person of disability;
- permanent disability and disability;
- death.
When applying for a policy, you may need a medical examination. If at the same time factors that threaten the life and health of the client are discovered, the cost of insurance may be increased.
Title insurance
This type of insurance against the risk of loss of ownership is also included in the comprehensive insurance program. The borrower insures the risk of loss of ownership of the property if it is challenged by third parties. In modern conditions, this service is very relevant and can protect against fraud on the part of the seller of housing. In some cases, it is difficult to verify the legal cleanliness of the home.
Cost and terms
Many insurers carry out mortgage insurance. Testimonials indicate that the final cost varies by company. You should not conclude an agreement with the first insurance offered, it is better to find out about the conditions and price at least in several representative offices. The Bank provides the borrower with a list of trusted insurers, which includes the largest market players, for example, VTB Insurance.
Mortgage insurance is carried out throughout the duration of the mortgage agreement. The insurance amount is set equal to the amount of the loan received, increased by another 10%. At the request of the borrower, real estate can be insured at full cost.
Insurance premiums must be paid annually. Their size will decrease as the loan is paid. Also, the amount of the insurance premium directly depends on the sum insured, the age of the insured, the type of loan agreement and the acquired property, the number of borrowers are of importance.
The cost of the insurance policy is determined individually depending on the above factors. For the borrower, mortgage insurance will cost about 1.5–2% of the sum insured. This is the price of comprehensive insurance covering almost all possible risks.
The insurance contract can be executed the next day after the submission of documents and applications.
Actions in case of an insured event
If an insurance event has occurred, the borrower's first responsibility is to notify the insurance company and the bank about this. Thus, the insurance mechanism will be launched. Since the beneficiary, that is, the one who receives the money, is a creditor bank, all issues will be resolved at the level of financial institutions. However, the borrower should be interested in the progress of the process.
Many borrowers fear that the money paid by the insurance company will not be enough to fully cover the debt. Banking and insurance workers argue that the occurrence of such a situation is impossible. When renewing an insurance contract , companies agree on the size of the debt so that its entire amount is included in the policy.
Is it possible to refuse insurance
Mortgage insurance is a fully justified requirement. However, many borrowers seek to save money and avoid entering into an insurance contract. If the initial refusal threatens to increase the interest rate on the loan, then refusal to pay the next insurance premium may have more serious consequences.
Banks stipulate the possibility of a sudden refusal of insurance in a loan agreement. For such cases, sanctions are provided, and rather stringent. The bank may simply demand a one-time repayment of the entire remaining amount of the debt.
If desired, the borrower can change the insurance company. The new candidacy needs to be agreed with the bank. Credit institutions do not cooperate with all insurance companies, but only with the largest. Therefore, the new insurer must also be included in the approved list.
Both the bank and the borrower need protection not a contingency. Mortgage insurance can provide it. Feedback from borrowers indicates that the choice of an insurer is no less important than the choice of bank and loan conditions.