Mortgage insurance is the key to acquiring a home loan. The legislation obliges to insure the object of the pledge against damage or loss. But credit organizations quite often make demands on the disability and life insurance of a potential borrower. What is mortgage insurance, is it possible to refuse?
Why do I need insurance?
The main players in the housing lending market are banks. Focusing on modern tax legislation, they oblige their customers to take out insurance on the acquired property. The task of banks is to minimize potential risks. Giving a home loan is a risky transaction in itself, since money is allocated for a maximum period at a minimum interest rate.
Title mortgage insurance is necessary to minimize the risk of challenging a transaction in a judicial proceeding, especially for secondary housing. Often, in practice, there are also cases of resale of the same apartments and other errors. Life insurance is necessary for both the borrower and the bank. Since upon the occurrence of an insured event, mortgage contributions will be paid by the insurance company.
Insured events
Before signing a mortgage and life insurance contract, you should familiarize yourself with the list insurance claims.
If the life of the borrower is insured, such cases are:
- death;
- partial or complete disability.
When these cases occur, the property remains the property of the borrower, and the insurance company fully repays the loan.
If the insured object is real estate:
- damage or loss of property due to fires, floods, natural disasters;
- unlawful actions of third parties;
- defects in the design.
Title insurance protects against loss of ownership of property purchased on a mortgage.
If the property is damaged, the borrower receives insurance compensation. And if it is physically lost and the ownership right is lost, then the money is paid to the creditor bank.
In the event of such cases, you should immediately contact the insurance organization.
Clearance process
Apartment insurance is issued on a voluntary basis. To do this, you must fill out an application for a desire to receive insurance policy. Also here you must specify the list of documents that will be attached to the application.
The insurance company is entitled to request any additional information and documents that were not indicated in the application. She can also verify the accuracy of the information provided by the policyholder. The latter undertakes to communicate all material circumstances affecting the degree of risk identification.
List of documents for life insurance
As a rule, mortgage and life insurance can be issued at the bank. Therefore, only a passport is required from the insured.
If an insured event occurs, the list of documents to be provided is substantially expanded.
Upon the death of the borrower, you must provide:
- A document confirming the fact of death.
- Help on causes of death.
- Help-extract from the medical record.
- Accident Act if this happened at the factory.
- Documents issued by competent organizations confirming the occurrence of an insured event.
If disability is lost, you must provide:
- Certificate of disability group.
- Documents confirming the establishment of a disability pension.
- A certificate of diagnosis with a description of the causes of disability.
- Help-extract from the medical record.
Mortgage Insurance: Cost
Risks that the creditor bank obliges to insure the borrower are subject to certain rates.
Apartment insurance will cost 0.3-0.5% more if its object is real estate itself. In this case, the interest rate depends on the material of the floors, the technical condition of the house, the nature of the decoration of the room and other similar issues.
The cost of life insurance of a borrower depends on his type of activity, age, and health. As a rule, the interest rate on life insurance is not more than 1.5%. The bank also has the right to demand insurance of the borrower's income.
The rate for title insurance is not more than 0.7%.
If we summarize all insurance costs when applying for a mortgage, then their share will be about 2% during the year of the residual value of the loan. These payments must be made once a year. Gradually, they decrease in proportion to the debt of the borrower to the bank.
Is it possible to refuse?
You can refuse insurance with a housing loan. In this case, the bank will require the borrower to repay the amount of debt that is provided for in the contract.
If insurance is issued at the bank, most likely the borrower will overpay a large amount. In this case, the policyholder can be chosen independently. Also, if necessary, it can be changed. Reliable, reputable organizations should be chosen for which large payments are commonplace.
Mortgage Insurance: Sberbank (features)
Sberbank is one of the key players in the housing lending market. During the process of obtaining a mortgage, he uses his own insurance system.
Sberbank considers mortgage insurance as an additional service. Moreover, if the borrower refused it, then the interest rate on the mortgage immediately rises by 1%. The presence of insurance is not a prerequisite for issuing a loan.
Termination of the insurance policy is possible only at the request of the client. To do this, you must submit an appropriate application, and it will be considered within two weeks.
If the borrower is already insured in another organization, its policy must meet the conditions:
- The policy must insure life and disability.
- The policy must cover the repayment period of the housing loan.
Sberbank has established the following insurance rates:
- 1.99% - life and health;
- 2.5% - life and health with a choice of additional conditions;
- 2.99% - involuntary job loss.
Main advantages and disadvantages
The main disadvantage of mortgage insurance is the cost of the contract. Legal title insurance is issued for 3 years. Life and health are insured for the entire period of payments, the maximum period of which can reach 30 years. Therefore, the amount of payments is quite large. The final cost of housing increases by the amount of insurance payments. If the borrower refuses insurance, the bank may impose additional payments on it, including increasing the mortgage rate.
The benefits include:
- In insurance cases, the policyholder pays the debt of the borrower.
- Borrower family members will not repay installments.
- Low probability of property loss.
- A mortgage can be repaid even if there are health problems.
Thus, compulsory mortgage insurance is beneficial for both the borrower and the lender. Since the housing loan agreement has a rather significant period, risk insurance allows you to protect yourself from unforeseen circumstances.