Mortgage loan insurance is systematically requested by the banking organization with which you make your mortgage. However, it is not legally compulsory.
So, can you get a home loan without borrower insurance? What are the alternatives so as not to be refused by the lender? We take stock of the issue.
What is borrower insurance used for?
Mortgage loan insurance is used to support the payment of maturities, in whole or in part, for cases of death, disability, incapacity, even illness or loss of employment according to the guarantees subscribed. Although it is required by banks to insure the mortgage and offer a guarantee in the event of default by the borrower, it is not legally binding. However, taking out a loan without providing solid guarantees as to repayments is tantamount to refusing a mortgage.
Generally, the bank will offer you a group contract, taken out through it, to provide you with borrower insurance. With the Lagarde law of 2010, it is now possible to have recourse to the insurer of one’s choice thanks to the delegation of insurance. From this perspective, it will be an individual contract which must offer at least guarantees equivalent to those offered by the banking establishment to be accepted.
Home loan insurance is usually the best deal for both the borrower and the lender. No need therefore to look for other solutions, which will be either more restrictive or more costly. However, some borrowers may not be able to find borrower insurance, either because they are too old, have a long-term illness, a disability, or because they work in a high-risk profession. Wiping refusal after refusal, they must consider other solutions …
Alternatives to mortgage insurance
When the search for borrower insurance fails, or it is accepted with a considerable premium that drives up the overall cost of your mortgage, it is relevant to turn to other solutions. Overview of the alternatives available and accepted by banks.
The mortgage is generally more expensive than the other types of guarantee, in particular because it must be registered by notarial deed, but also because it is necessary to proceed to its release (in the event of resale of the property or repurchase of credit for example).
It consists in taking real estate as security for the loan granted. However, it requires that the borrower already has substantial real estate assets, knowing that the mortgage can make it possible to obtain a loan of an amount not exceeding 50 to 70% of the property taken as collateral.
In other words, to obtain a loan of 200,000 euros without mortgage insurance, the mortgaged property must have a value of at least 300,000 euros.
The collateral, a little less expensive than the mortgage, is to be preferred for the real loans of short duration or of small amount. It is similar to the mortgage, with the difference that it is generally movable property which is taken as collateral by the bank.
Most often, collateral involves taking a savings product as collateral, such as life insurance. It is therefore necessary that the borrower has a significant movable heritage, and accepts the fact of not being able to manage it as he wishes.
In the event of non-repayment of the maturities, the bank can take the necessary funds from the collateral. This type of guarantee allows you to borrow about 50% of the amount of the collateral.
For example, life insurance worth 200,000 euros allows you to obtain a mortgage of 100,000 euros. It is possible to obtain more, but in this case the bank can request, in addition, the taking of mortgage on the real estate that it finances.
The bank guarantee
Two types of sureties are possible to replace mortgage insurance. First of all, the personal or private surety, which allows someone close to you to guarantee the payment of your installments in the event of default on your part. It could be your parents, your children, your employer, your spouse or even a friend. We speak of “joint and several” surety.
The second solution is the bank guarantee. Either a financial institution other than the one where you sign the loan offers its guarantee, or your own bank offers this contract, it is then a “mutual” guarantee.
Find mortgage insurance at an advantageous rate
You will understand, although borrower insurance is requested by banks, it is not compulsory. However, a substitute will have to be found since a guarantee of payment will be required.
When the file is complex, it may be useful to use the services of a broker. Not only will he know how to determine which type of guarantee is preferable in your situation, but in addition he will be able to seek the appropriate partners to obtain insurance, whatever its nature, so that you obtain your mortgage.
Finally, know that the refusal of mortgage insurance is not inevitable. One organization may very well refuse you while another will accept you, with or without a premium depending on your file. In this case, using an online calculator to find borrower insurance at the best value for money turns out to be an excellent solution.