Home loan insurance must be taken out at the same time as your mortgage with the bank.
It can be calculated in two ways, on the initial capital, i.e. the total amount of the loan, or on the outstanding capital, i.e. the amount remaining to be repaid to the bank over the years.
While the calculation on the initial capital offers you fixed borrower insurance maturities, the calculation on the outstanding capital offers you decreasing contributions. Which insurance to choose? We will help you take stock.
Principles of mortgage loan insurance on initial capital
Most of the time, when you take out mortgage loan insurance from your banking institution or an insurer of your choice at the same time as your loan, you benefit from borrower insurance on the initial capital.
This approach is rather logical, since it is the mortgage that you take out that is insured and that all the deadlines are therefore payable. This type of insurance is often more beneficial at the start of the loan repayment.
It represents a double advantage since you benefit from:
- A fixed rate on mortgage loan insurance
- Identical maturity amounts each month, regardless of the duration of your mortgage
- In the event of repayment of the loan in advance, you will not have paid too much contribution in relation to the amount borrowed
The calculation of home loan insurance is done very simply by knowing the insurance rate. If we take a simple example, for a loan of 100,000 euros over 20 years with an annual borrower insurance rate of 0.5%, you will pay insurance monthly payments of 41.67 euros per month (100,000 x 0.5%) / 12 = 41.67 euros.
In other words, the total cost of your loan insurance is $ 10,000, or 100,000 x 0.5% x 20.
Principles of mortgage insurance on the outstanding capital
As for the insurance on the outstanding capital, or insurance known as “degressive”, it is more often chosen within the framework of the delegation of insurance, that is to say when you change mortgage insurance a once you have started repaying the installments.
Indeed, it is in a way a new risk that the insurer takes charge in this context: your age and your state of health may have changed. At the same time, your outstanding capital keeps dropping and you pay back less and less interest to the bank.
This solution can be advantageous, but it is not always the case and it is necessary to make the calculation between the two types of insurance before changing the borrower guarantee, to go to the most favorable.
With mortgage loan insurance on the outstanding capital, you benefit from:
The calculation of mortgage loan insurance on the outstanding capital is therefore done over the months, depending on the outstanding capital. Going back to the previous example, with an outstanding capital of 100,000 euros and borrower insurance at the annual rate of 1%, you will pay monthly insurance payments of 83.33 euros the first months (100,000 x 1%) / 12 = 83.33 euros.
On the other hand, when the outstanding capital is only 50,000 euros, you will pay 41.67 euros in insurance (50,000 x 1%) / 12 = 41.67 euros. At the end of the loan, when the outstanding capital is only 10,000 euros, you will pay only 8.33 euros in insurance (10,000 x 1%) / 12 = 8.33 euros.
Which formula to choose between borrower insurance on the initial capital or remaining due?
This answer will depend on several parameters, and if you will of course have to base yourself on the total cost of your mortgage insurance, you should not neglect your personal projects.
Indeed, if the property is kept for the duration of the loan, it is often more interesting to opt for degressive borrower insurance. On the other hand, if you are uncertain about your upcoming projects in the coming years, fixed rate borrower insurance is often more advantageous.
Indeed, it will be less expensive if you resell your property before the end of your loan, if you repay it in advance through an inheritance, or if you redeem your mortgage.
Whichever you choose, you can save money on your mortgage insurance at any time. With this in mind, we invite you to carry out an online simulation to take advantage of the best offers on the market.
Good to know : do not rely on the borrower insurance rate if you compare between fixed and declining maturities, because as we have seen, degressive borrower insurance has a higher rate, without necessarily presenting a higher final cost. It is therefore necessary to compare the total cost of mortgage insurance, while taking into account your possible desire for change over the years.