Home loan insurance is required by your banking institution when you want to obtain a mortgage. It has a direct impact on the rate and cost of your loan.
How much does borrower insurance cost? How to be well covered by paying the minimum? We explain …
How is the price of mortgage insurance calculated?
Of course, the guarantees chosen will influence the price of borrower insurance up or down:
- Coverage rate for invalidity and incapacity
- Insurance quota on each head
- Presence of a loss of employment guarantee, etc.
And these may cost more or less depending on the following parameters:
- The insured’s age and state of health
- The amount, duration and type of loan to be insured
- Specific risks relating to the insured
In addition to these specificities, it is necessary to know the main billing mechanisms to fully understand what the price offered by the insurer corresponds to. They are based in particular on two different calculation methods.
Calculation method based on initial capital
The most common method of calculation, and generally retained if it is not a change of insurance but a first subscription, is determined by the initial borrowed capital.
Here, the billing is fixed and you pay the same amount of insurance for each loan maturity. This means that mortgage insurance costing 50 euros per month for a loan committing you over 20 years will have an overall cost of 12,000 euros.
This calculation is often more advantageous if you have other projects and are not sure to pay your mortgage until the end of the loan period (moving, resale, prepayment).
Calculation method according to the outstanding capital
There is also a less well-known, but often interesting, method of calculation. This involves revising the cost of mortgage insurance at each due date, taking into account the outstanding capital.
Here, the invoicing is degressive and you pay your borrower insurance less and less as you repay your capital. This is still to be qualified according to your age, because the premium may be revised due to a higher risk.
This calculation is often beneficial in terms of the total cost of borrower insurance. It will generally be preferred by those who wish to keep their property throughout the term of the loan.
Special cases leading to an increase in borrower insurance
If the insurer takes into account your age and the characteristics of your loan, it also considers the high risks that may justify an “additional premium”, that is to say an increase in the price of mortgage insurance.
The specific risk according to the state of health
The insurers will ask you for a first medical questionnaire. This formality allows them to take the measure of the risk and ask you for in-depth examinations if necessary.
If your age and weight are important, your medical history will be just as important, especially in the event of long-term ailments, cardiovascular diseases, cancers, MDPH recognition, etc.
Namely for borrowers with a so-called “aggravated” health risk, it is good to turn to insurers signatory to the AERAS convention, who can offer you mortgage insurance at reasonable cost.
The specific risk related to professional activities
Professional stability aside, some jobs require frequent travel (road for example), others expose you to risk (police, gendarme, military) and others are physically difficult (handling, night work, outdoor work, etc. exposure to hazardous chemical agents, factory work, etc.).
The rate proposed by the insurer may therefore include an additional premium if it considers that the risk exposure is recurring and high enough to impact the rate of borrower insurance.
The specific risk associated with leisure activities
Here, it is especially extreme sports that are taken into consideration. These can be mountain sports (skiing, snowboarding, hiking, etc.), water sports (surfing, diving, rafting, etc.), aerial sports (paragliding, parachuting, microlight, bungee jumping, etc.), sports mechanical (car and motorcycle rallies, karting, etc.).
Some insurers also take into account combat sports, equestrian sports, hunting activity, etc. You should always respond with sincerity so as not to be deprived of your rights to mortgage insurance.
How do you compare the cost of mortgage insurance?
Be vigilant about the overall rate or global cost of insurance
Generally speaking, compare the overall cost of insurance over the life of your loan rather than the insurance rate. This is only relevant for fixed-rate mortgage insurance, calculated on the outstanding capital.
The choice of the best contract must be made not only according to the price of borrower insurance, but also according to your life project.
Think about delegation of insurance
Thanks to the Lagarde and Hamon laws, you are free to choose the home loan insurance of your choice. This is called insurance delegation. You can therefore from the start of your loan or at each anniversary maturity opt for the contract that suits you.
The only condition concerns the guarantee equivalence, your insurance will have to cover you in the same way, or better, than that offered by the lender.
Find the best borrower insurance
In order to find borrower insurance at the best value for money, using an online simulator allows you to have access in a few clicks to the best offers on the market.
You will be able to compare the guarantees, the prices offered and opt for a fixed or declining rate insurance depending on your personal situation.