Yesterday I went to the bank to request a mortgage, rather a second mortgage, that things are still bad. I did it thinking about canceling the first one and getting some liquidity to plug holes.

The employee who attended me was telling me the requirements that I had to meet: direct payroll, several receipts, a credit card, and …

Buy at least two insurance: one for home and the other for life.

Ask if it was mandatory and the answer was:

– No, but still …, if not …, it is possible that …

Come on, if you want the credit, you should accept the conditions.

It is true that when it comes to formalizing a mortgage loan to buy a home, the law requires the contracting of damage insurance.

It seems logical that whoever grants the loan has insurance in case the guarantee for which the loan is granted disappears. The possible fire of the property or the consequences of natural risks, such as storms, storms, or floods is reason enough for this guarantee to disappear.

The assets on which the mortgage guarantee is constituted must have insurance against damages appropriate to their nature.

But the law does not say that the insurance has to be contracted with the same entity that grants the mortgage. It is only part of the dirty game with which banks act when granting credit.

The deception of mortgage-linked products

The bank to its own: I give the money, I put the conditions.

And of course, they are never to the benefit of the consumer. You will find a series of insurance contracts linked to mortgage credit, many times unnecessary for you.

Thus, to the direct debit of the payroll, the home receipts, or the hiring of cards, it is added as a requirement for the granting of the loan, to contract home insurance, another life insurance, and even another payment protection.

Not only do they play with the requirement of taking out certain insurance, but they also play with the duration or with the insured capital.

These are three types of insurance whose contracting is usually imposed by the bank.

#1. Home damage insurance

The requirement to ensure capital for the continent equal to or greater than that of the property appraisal. It is not broken down and therefore uninsurable assets are not excluded due to their nature, in particular the value of the land. This means that there is insurance for which in the event of a claim you will not charge more but you will be paying more for the insurance.

You should also bear in mind that in the mortgage contract they will not be able to establish a commitment of duration greater than 10 years since this is the maximum duration allowed by the Insurance Contract Law. Nor may it have a duration greater than that of the mortgage.

#2. Life insurance

If you ask for a breakdown of what you are going to pay for the mortgage and you do it by concepts, the loan will be given in detail, the linked insurance will only be a reference.

While the loan payment may be the same every month, in the case of the policy, no. Life insurance will increase according to the age of the insured, so you can start paying little and then increase considerably as you age.

#3. Payment protection insurance

It is the least frequent type of insurance among linked insurances, quite controversial at the time of the provision, but with a good commercial hook in the times that run since it guarantees the collection of a capital that allows you to meet the payments of the mortgage in certain situations: unemployment, disability, death.

To the premiums that you have to pay for each of these insurances, it is necessary to add sometimes the payment of the expenses that it supposes to carry out the medical examination required in some of these modalities to prove your state of health.

But be careful that we are not only talking about money, we are also talking about the rights of the mortgaged.

Can I contract the insurance with the insurance company I want?

Since the first European Directive on mortgages was published in February 2014, banks have been prohibited from linking a mortgage to taking out insurance.

Currently, the bank cannot deny you the granting of a mortgage loan for not contracting the insurance. But they can deny your concession under preferential conditions, as would have been the case when contracting insurance.

As long as the loan conditions interest you, you can accept the insurance contract. After the first year has elapsed, replacing it with the one you contract with an independent insurer.

What rights does the bank have on compensation?

When we talk about damage insurance, we talk about insurance that has an indemnity nature. Only the owner of the property can collect compensation, otherwise, there would be an unjust enrichment of the person who charges because they have not suffered damage to their assets.

In the case of the mortgagee, an exception occurs that is regulated in articles 40 to 42, which in summary establish:

  • The mortgagee has a right to compensation in the event of destruction of the mortgaged property in such a way that it can enforce that right in the event of a loss. That is why the law requires the insured to notify the insurer of the existence of the mortgage.
  • In the event of a claim, the insurer will request the consent of the creditor to pay compensation to the insured. If there is no agreement between the holder of the guarantee (the bank) and the insured, the insurer will have to consign the compensation.
  • The insurer must notify the mortgagee of the termination of the insurance contract or the non-payment of the premium owed. The extinction of the opposite can not be opposed to the bank until one month after the fact that motivated the extinction was communicated to it, in addition, it may pay the unpaid premium, to protect its right, even in the face of the opinion of the policyholder. 

What happens if I want to change my insurance company?

If you consider changing your insurance company after all of the above, you will have to notify them of the cancellation of the contract in advance, before the deadlines set by law. At the same time, you will have to take out the new insurance from which you will have to deliver to the bank the documentation that proves your status as a mortgagee.

In this way, the bank’s right is safeguarded so you should not have any problem with the change.

Can I be required to pay my insurance at one time?

Yes.

You will always be the one who chooses the form of payment of the contract linked to its duration. You will be able to choose between a single premium multi-year insurance, which you pay once, or with a renewable annual duration.

If you opt for the first, the law does not allow you to take out damage insurance for a duration of more than ten years. If you repay the loan before ten years, the bank or its insurer must reimburse you for the period of coverage not consumed, if this is established in the insurance or mortgage contract.

The most logical option is that the duration of the policy is temporary, renewable from year to year. In this way, you can cancel it whenever you want in search of alternatives with better benefits and a lower price.

Three recommendations before subscribing to your mortgage loan

When I left the bank I went to see my insurance advisor see what I could do. He informed me of all the above and made three recommendations and some numbers. He compared the cost of insurance by contracting it outside the bank and the increase in the fee after increasing the mortgage spread.

Here are the 3 recommendations and the result of the comparison. It will surprise you!

  1. Find the mortgage that has the least associated insurance.
  2. Ask what the mortgage would look like by removing some insurance and negotiating an adjustment to the conditions.
  3. Make numbers and see if you are interested in a mortgage without linked insurance
In my case, contracting insurance outside the bank, the annual saving is 182.75 dollars (2 months of the gas bill)

A few seconds of reflection before going to the comments where you can leave your answer to these questions:

Do you have insurance linked to your mortgage contracted with the bank? Do they meet your needs?

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