Mortgage insurance is a standard requirement from banks when obtaining a mortgage. Banks often offer, and sometimes even impose, so-called comprehensive mortgage insurance, which includes:
- real estate insurance;
- title insurance (property rights);
- life and health insurance.
According to the law, the only mandatory type of insurance is insurance of collateral. By insuring your property in case of unforeseen circumstances, we can rest assured that the mortgage will be repaid from insurance payments. However, as a rule, banks also insist on life and health insurance, the refusal of which may lead to an increase in mortgage rates, since banks do not have the right to directly impose this type of insurance.
What does the law say?
The principles for issuing mortgage loans are regulated by Federal Law No. 102 “On mortgage (real estate pledge)”, according to Art. 31 the purchased real estate, which is pledged to the bank, is subject to compulsory insurance:
Other types of insurance: title, health and life of borrowers and co-borrowers, the risk of their losing their ability to work, etc. are voluntary and the bank does not have the right to force the client to conclude an agreement.
Thus, the borrower by law has the right to refuse voluntary types of insurance
.
On the other hand, despite the fact that the mortgage law does not require the mandatory conclusion of voluntary insurance agreements, this obligation arises from the terms of the loan agreement concluded between the bank and the client. Therefore, the lender has the right to set conditions for increasing the interest rate if the borrower is unwilling to insure the risk of loss of ability to work, health and life.
What to look for when applying for a mortgage
Purchasing a home is a responsible process, and is increasingly accompanied by taking out a mortgage loan. Which, of course, adds even more nuance and responsibility for potential property owners. We turned to our experts - representatives of banks in Krasnoyarsk, to find out what pitfalls there may be when applying for a mortgage loan.
Nowadays, a mortgage is usually called a mortgage loan - a loan issued against real estate.
We have already discussed which apartment you can buy with a mortgage, as well as the conditions for mortgage loans in Krasnoyarsk banks in the previous article. Now let’s look at the main issues that arise when applying for a mortgage:
- What should you pay attention to when applying for a mortgage? Does the bank have programs for state employees? Other benefit programs?
- Is it necessary to have a co-borrower?
- How and within what time frame is funds transferred to the real estate seller? What commission is paid and by whom?
- Is insurance required? What risks need to be insured when buying an apartment? What insurance companies does your bank work with? Can a client obtain insurance from a company not included in this list?
- Is the certificate of ownership of the purchased apartment with the borrower or with the bank?
- How is mortgage repayment done at the bank: planned and early?
What should you pay attention to when applying for a mortgage? Does the bank have programs for state employees? Other benefit programs?
Natalya Tabarintseva, VTB manager for the Krasnoyarsk Territory:
“First of all, carefully read the terms of the loan agreement, ask all the necessary questions to the bank employees so that you understand what the payment amount, payment terms and other important points consist of. Ask your mortgage representative to calculate different monthly payment options based on the life of the loan. You need to consider your financial capabilities. According to statistics, the least “painful” for the family budget are payments that make up less than 40% of the total family income. Find out the conditions for early repayment, during what period it is possible, how much you can pay in excess of the monthly obligatory payment. Banks are interested in the comfortable provision of services, so they will suggest the most acceptable conditions. Thus, VTB has a program with a reduced interest rate for employees of budgetary organizations, workers in the healthcare and education sectors, tax and other authorities - “People of Action”. Separately, I would like to note another way to purchase your own home using the VTB mortgage program. For all categories of citizens who have reached the age of 25, but do not have the opportunity to officially confirm their income, as well as for business owners or those who are registered with imputed income, VTB offers the “Victory over formalities” program. As part of it, you can purchase real estate on credit without a certificate of income, using two documents: a passport and a SNILS number. “Victory over formality” is often chosen by clients for whom it is important to book an apartment as soon as possible, especially since a decision on the application is made within one day. Under this program, there is a special offer until September 30 - the minimum down payment is 30% of the value of the property. The bank’s offer allows you to get a mortgage for a finished property, an apartment in a new building, apartments, as well as refinance a previously issued loan. Funds can be issued for a period of up to 20 years with a maximum amount of up to 30 million rubles. In this case, registration of the borrower in the region where the real estate is purchased is not required. We note the high demand for the program: in the first six months across the country, the bank concluded more than 20 thousand transactions worth 50 billion rubles, which is 15% more than the same period last year. In addition, one of the bank’s most popular programs was the “Mortgage with State Support” program, which was launched last year and is subsidized from the federal budget. It is also available to public sector employees. Families in which a second or subsequent child was born after January 1, 2021 can apply for a loan under the preferential program. Previously, the rate was 6%, and the grace period was limited to a maximum of eight years. In April, our bank was the first in Russia to reduce the rate under the state program to 5% for the entire mortgage term. Home loan refinancing is available at the same price parameters. The maximum loan amount under the program is set at 12 million rubles when the borrower purchases housing in Moscow and the Moscow region, St. Petersburg and the Leningrad region, and 6 million rubles in the Krasnoyarsk Territory and other regions of the Russian Federation. The initial payment under the program is from 20%, the term is up to 30 years. The loan is issued for the purchase of finished or under construction housing from the developer. I would like to note that over the past year, VTB concluded more than 1,700 such mortgage loans, this is a third of the total number of issues in Russia. Note that the most popular regions for purchasing housing from Krasnoyarsk residents are Moscow, St. Petersburg, Sochi and the Krasnodar Territory. In Krasnoyarsk, in the first six months, we provided 63 preferential loans worth over 156 million rubles. We expect that attractive rates under our programs, including preferential mortgages, will continue to guarantee high demand from citizens to improve their living conditions. In addition to the above proposals, VTB offers a wide range of programs for all categories of the population, since focusing on the needs of our clients is VTB’s strategic goal. Borrowers can only choose the most suitable option.”
Natalya Ledeneva, head of the Siberian mortgage branch of Promsvyazbank PJSC:
When applying for a mortgage loan, you must pay attention to all the essential terms of the transaction: loan term, interest rate, down payment amount, monthly payment amount. Even at the stage of applying for a mortgage, I recommend that you carefully read the proposed mortgage programs and discuss any unclear points with a loan specialist. When concluding a loan agreement, ask for clarification from a bank employee of all points of the agreement about which you have questions and doubts. Another tip that will save the borrower’s time is that it is better to study the loan agreement and mortgage agreement forms in advance; they can be obtained from the bank’s mortgage center or downloaded from our bank’s website. If any points in the documents are unclear, they should be clarified with the bank manager. Our bank has special mortgage programs for employees of the military-industrial complex.”
Ilya Kuryakov, director of retail business at Alfa-Bank in Krasnoyarsk:
“In addition to standard conditions, rates, loan terms, and loan repayment options, you need to pay attention to the convenience and comfort of servicing your mortgage loan, which is taken out for a longer period than all other loan products. The bank has special conditions for purchasing apartments at the construction stage from accredited developers, many of them provide discounts.”
Natalya Marakova, head of the department of retail lending and SMEs of PJSC Far Eastern Bank:
“When applying for a mortgage, you need to pay attention to the interest rate, the cost of appraising the property being purchased, and the costs of paying for insurance. Currently, PJSC Far Eastern Bank provides loans under the Family Mortgage with State Support program. The bank also has favorable conditions for salary clients and clients purchasing real estate with an area of more than 65 sq.m. You can learn in detail about all the features of mortgage products, lending conditions, interest rates on the website of PJSC Far Eastern Bank: www.dvbank.ru, bank offices and by calling the information center (calls within Russia are free).”
Lyudmila Rytova, deputy manager of Otkritie Bank in the Krasnoyarsk Territory for retail business:
“You need to carefully read all the documents that you sign and pay attention to ALL the details in the contract - the repayment period, the total loan amount and the amount of the monthly payment, whether all the conditions and opportunities for early repayment of the loan are specified. The size of the down payment under preferential programs is from 15% of the cost of housing. The loan term can be up to 30 years, the amount - from 500 thousand to 15 million rubles. The bank offers preferential mortgage lending conditions for salary card holders, among whom there are many representatives of enterprises from the public sector. Such clients can get a targeted loan cheaper, faster and easier. Funds to repay the loan will be automatically debited from the salary card account, which will simplify servicing the loan as much as possible. Special conditions apply to the bank's salary clients. Among them are a minimum package of documents (only a passport), reduced interest rates and the size of the down payment, an increased loan amount under the “Refinancing” program (up to 90% of the value of the apartment being pledged as collateral, but not more than the balance of the loan debt from another bank). You can get a loan on favorable terms if you are between 18 and 65 years old (at the time of repayment of the loan), if your work experience at your last place of work is at least three months, and your wages have been credited to Otkritie cards for three months in a row.”
Is it necessary to have a co-borrower?
Natalya Ledeneva, Promsvyazbank:
“Having a co-borrower on a mortgage loan is not a prerequisite. If the borrower's current income is sufficient to repay the mortgage obligation, the client does not need to involve a co-borrower. Our bank does not attract guarantors for mortgage programs.”
Natalya Tabarintseva, VTB:
“Having a co-borrower is not always a necessary condition. For example, if you have no relatives, but your income allows you to purchase ready-made housing on your own, then you will not need a co-borrower. For a married couple, purchasing joint housing means that one of the spouses will act as a co-borrower, even if his income level is minimal or completely absent. At the construction stage, banks may consider third party guarantees as conditions for additional security. These can be capable citizens of the Russian Federation or foreign citizens whose age at the time of registration of the mortgage is at least 21 years old and not more than 60 years old, as well as legal entities. A third party guarantee is established until the state registration of the mortgage of the property or the completion of construction. The bank is also considering the conditions for attracting guarantors - close relatives for borrowers - men under the age of 27 who have not served in the Russian army or citizens of pre-retirement age - up to 70 years old.”
Natalya Marakova, Far Eastern Bank:
“If the borrower is in a registered marriage, then his/her spouse acts as a borrower under the mortgage transaction, regardless of whether he/she has a source of income and regardless of the amount of such income. If the spouse refuses to participate in the transaction as a mortgagor, notarized consent is required to pledge the acquired real estate to the bank. The presence of a co-borrower is mandatory if the borrower’s solvency is insufficient to fulfill loan obligations under the mortgage housing loan in question. The total number of borrowers under the loan agreement cannot exceed 3 (three) people.”
Lyudmila Rytova, Otkritie Bank:
“If your own income allows you to take out a mortgage loan for the required amount, then a co-borrower is not necessary. No guarantee is needed."
How and within what time frame is funds transferred to the real estate seller? What commission is paid and by whom?
Natalya Ledeneva,
Promsvyazbank:
“For settlements with the seller under a mortgage transaction, a letter of credit form of payment is used. An irrevocable covered letter of credit is a guarantee that the seller will receive funds from the buyer after the transfer of residential premises. For the buyer of residential real estate, this is a very convenient form of payment, which reduces the risks associated with the seller’s improper fulfillment of its obligations. The buyer and seller specify the conditions under which money from the letter of credit account is transferred to the seller's account. The condition for the receipt of funds by the seller of real estate is the provision of the original purchase and sale agreement registered with the justice authorities. Opening a letter of credit in our bank costs 2,000 rubles. There are no additional commissions for this form of payment."
Ilya Kuryakov, Alfa-Bank:
“After state registration of the right and provision of supporting documents to the bank within one working day. Possibly in cash, by bank transfer, as is convenient for the parties to the transaction. There is no fee for settlements with the seller."
Natalya Marakova, Far Eastern Bank:
“Settlements with the seller of an apartment can be carried out both at the expense of the buyer’s own funds (the buyer’s down payment), which is transferred by the buyer before the state registration of the transfer of ownership in cash or by bank transfer, and at the expense of credit funds that are transferred after the state registration of ownership and mortgage by bank transfer to the seller's account (final payment). Funds transfers within mortgage transactions are carried out without commissions.”
Lyudmila Rytova, Otkritie Bank:
“Credit funds are transferred after registration of the purchase agreement by transfer to the seller’s bank account or using a letter of credit (secure payments). The commission for a letter of credit is 1000 rubles, it is paid by the borrower (buyer).”
Natalya Tabarintseva, VTB:
“At the time of concluding a mortgage transaction, the financial institution credits funds to the borrower’s account opened with the lender bank. The timing of the transfer of funds to the real estate seller from the borrower’s account depends on the settlement system and is individual for each transaction. If the object is in a new building, then settlements with legal entities - legal entities - are carried out only by bank transfer. If the copyright holder is an individual, cash payments are possible. In the secondary market, settlements with the property owner are possible both in cash and non-cash. It is worth noting that non-cash payments may include a letter of credit form of payment, and for cash payments, individual bank safe deposit boxes can be used. There is no fee for transferring funds, with the exception of the letter of credit payment scheme.”
Is insurance required? What risks need to be insured when buying an apartment? What insurance companies does your bank work with? Can a client obtain insurance from a company not included in this list?
Ilya Kuryakov, Alfa-Bank:
“The obligatory type of insurance for a mortgage loan is property insurance (structural elements of the apartment) in accordance with the Federal Law “On Mortgage (real estate pledge),” but we recommend and consider it necessary to also insure the life and health of our borrower, as well as the risk of loss of property rights (title insurance), because The mortgage loan is received for long periods and the borrower cannot guarantee a full operating cycle for the entire loan term. The same with title risks; this is, first of all, a guarantee and protection of the borrower himself, that if the transaction is declared invalid, he will not be left without an apartment and with a mortgage loan. Currently, three insurance companies are accredited by Alfa-Bank: Alfa-Strakhovanie, SK Absolut, SK VSK. In case of refusal of the above insurance companies and for a number of other reasons, you can insure yourself with another insurance company. Each specific case is agreed upon individually.”
Natalya Ledeneva, Promsvyazbank:
“Risks for mortgage insurance: life and health of the borrower, co-borrower; collateral risk of loss/damage; right of ownership of the Pledged Subject. The selection of an insurance company is carried out by the partner or client independently from the list of companies recommended by the bank. A complete list of insurance companies is available. Our bank has accredited more than 30 insurance companies, enough to choose the most attractive conditions for the borrower. The bank accepts insurance policies only from accredited insurance companies.”
Natalya Marakova, Far Eastern Bank:
“Interest rates for mortgage lending are set taking into account personal insurance of borrowers (carried out upon request), title insurance (it is recommended that the borrower carry out it within 36 months from the date of registration of ownership of the purchased property), property insurance, which is mandatory for the entire term of the loan agreement . PJSC Far Eastern Bank cooperates with a large number of insurance companies, so each client will be able to choose the most favorable conditions for themselves.”
Natalya Tabarintseva, VTB:
“Whether or not to insure the purchased object is the choice of each borrower. But at the same time, it is important to remember that thanks to the registration of the service, you can protect yourself from cases of impossibility of repaying loans when your financial situation or physical condition worsens. In addition, when insuring the property being purchased, the client may be offered a loan rate on more attractive terms. Banks have a list of insurance organizations, and borrowers make their own decisions about choosing one of them. As a rule, citizens insure the risks of loss or destruction of real estate or other property that is the subject of collateral, as well as the risks of termination or limitation of ownership of real estate, loss of life and disability of the borrower or guarantor. The borrower has the right to decide to change the insurance company or enter into a new contract with another insurance company during the loan period and/or terminate the insurance contract early in cases provided for by the Civil Code of the Russian Federation.”
Lyudmila Rytova, Otkritie Bank:
“According to the legislation of the Russian Federation, insurance of a property is mandatory when purchasing housing with a mortgage. Life/health insurance and title insurance (home ownership) for secondary housing is voluntary; for refusal of insurance, there is a surcharge to the rate of 2% for each risk. The client can contact any insurance company included in the list of accredited ones - information about this is presented on the Otkritie Bank website.”
Is the certificate of ownership of the purchased apartment with the borrower or with the bank?
Ilya Kuryakov, Alfa-Bank:
“This document has been canceled since July 15, 2016 and is no longer issued by Rosreestr. Now extracts from the Unified State Register are issued, which is also a confirming document of the owner. Which indicates who is the owner of the property, and on the basis of what documents the property belongs to the borrower. This statement is issued and remains in the hands of the borrower. A copy of this document certified by a bank employee is kept in the borrower’s file.”
Natalya Marakova, Far Eastern Bank:
“According to current legislation, the list of documents confirming the transfer and registration of ownership of the purchased property in favor of the borrower changes periodically. Currently, the Rosreestr Office does not provide a Certificate of Ownership of an apartment, so the document confirming ownership is an Extract from the Unified State Register of Real Estate and a sales contract with a state registration mark (registration record). These documents will be kept by the borrower, and copies will be kept by the bank.”
Lyudmila Rytova, Otkritie :
“The certificate of ownership of the purchased apartment is in the hands of the owner. The collateral remains with the bank and the client.”
Natalya Tabarintseva, VTB:
“From the moment of registration of the property, the certificate of ownership is with the borrower. The bank retains a credit dossier, which will contain copies of all registered documents.”
How is mortgage repayment done at the bank: planned and early?
Natalya Ledeneva, Promsvyazbank:
“Scheduled repayment of a mortgage loan is carried out according to the schedule that the client receives when concluding a loan agreement with the bank. The schedule calls for monthly payments for the life of the mortgage. The client can make full early repayment of the loan on any day convenient for him. Moreover, he can do this both in a bank branch and remotely using Internet banking.”
Ilya Kuryakov, Alfa-Bank:
“Partial early repayment and full repayment of the loan are possible from the first month of the mortgage loan. An application for a loan can be submitted in the borrower’s personal account; it is not necessary to come to the bank to complete the application. There are no commissions. There is no minimum loan repayment amount. It is possible to change both the payment amount and the loan term, depending on the wishes of the borrower. Funds are debited on the payment date.”
Natalya Marakova, Far Eastern Bank:
“The terms of the loan agreement provide for planned and early repayment of the loan. Planned repayment is carried out according to the schedule, which is an appendix to the loan agreement, and is made on the date chosen by the borrower. Early repayment is possible without restrictions on the amount and repayment period and is carried out at the request of the client.”
Lyudmila Rytova, Otkritie Bank
“Early – full or partial – repayment of a mortgage loan can be done in your personal account on the bank’s website. No fines or commissions are charged. Scheduled loan repayment is possible in several ways - through your personal account on the bank’s website, by automatically writing off the established amount of the annuity payment on a fixed monthly repayment date, and by paying the loan through a bank ATM.”
Natalya Tabarintseva, VTB:
“The borrower has the opportunity to make either full or partial early repayment. To do this, you must notify the bank by writing a statement of your intention. In this case, interest accrued before the repayment date in accordance with the terms of the loan agreement is subject to payment in full on the date of settlement transactions. After this, an employee of the financial institution provides the client with information on the recalculation of monthly payments, the amount of the last payment, as well as an updated calculation of subsequent payments.”
236 mortgage lending programs from 32 banks in Krasnoyarsk. (daily update)
How to cancel mortgage insurance?
It is easier to refuse voluntary insurance before signing a loan agreement. In this case, banks will reconsider the terms of issuing a mortgage and the interest rate will be increased.
If the credit institution is not satisfied with the option of issuing a mortgage without issuing a voluntary insurance policy, the applicant will be denied a mortgage
Without explaning the reason. The bank has the right to do this. As practice shows, such cases do occur, but not often. The more common option is to increase the percentage.
What will you need?
To refuse insurance, you will need to notify the personal manager of the bank who is involved in processing the client’s mortgage loan.
Step by Step Actions
If the bank does not accept the borrower’s desire to refuse voluntary insurance, the following should be done:
:
- Prepare an application addressed to the head of the department and hand it over personally. The application is written in two copies, one of which must be signed by a bank employee.
- Call the bank's Customer Support Center with an authorized employee.
- If the bank does not want to make concessions, you can simply find another lender. Today there are so many offers of credit products on the financial market that it will not be difficult.
How to get your mortgage insurance back
When drawing up a loan agreement for a mortgage, from the very beginning, even before signing it, ask the bank if it is possible to return the insurance. You need to carefully study all the clauses of the contract and decide whether you need this insurance. Once the agreement has already been concluded and signed, it will be much more difficult to return the money.
Once the mortgage loan is paid off, the insurance is not refunded, but if it is paid off early, it can be partially refunded. The amount of the refund depends on how early the debt funds were deposited, but it should not be 50 percent of the full insurance. To recalculate and resolve the issue, go to the organization where you signed the contract, write an application for the return of insurance and bring documents about repayment of the debt.
For example, if, with a mortgage taken out for 20 years, a citizen pays off the entire debt within 10 years, then he can count on returning half of the insured amount. Let’s say it was 200,000 rubles, in this case a person has the right to return half - 100,000.
Is it possible to refuse mortgage insurance after signing the contract?
The borrower has the right to refuse insurance during the “cooling off period”. This is the period given to the borrower to evaluate the need for the purchased service. At this time, the policyholder can terminate the insurance contract, receiving back all the money paid without penalties. Payment is made within 10 days.
Previously, the period was 5 days, due to new instructions from the Bank of Russia, from January 2021 the cooling period has been increased to 14 days, i.e. the voluntary insurance contract can be easily terminated within two weeks after its conclusion.
To cancel an insurance contract during the “cooling off period” you will need to write an application to the insurance company.
In this case, the steps are as follows:
- The insured collects the following package of documents: a policy or insurance agreement, a receipt for payment of insurance, if insurance is included in the amount of the mortgage loan, then a loan agreement with a repayment schedule is provided, account details where the money will be returned.
- Documents are submitted to the insurance company. An application for termination of the contract is written there. The application form can be downloaded online or obtained from the insurance company. Application example:
- Within 10 days the contract will be terminated and the money will be returned to the client. If the amount of insurance payments is included in the body of the loan, it is better to immediately use the returned insurance for early repayment of the debt, so as not to overpay interest.
If there is no representative office of the insurance company in the borrower’s locality, he can send documents for termination of the contract by Russian Post, by registered mail with notification.
Where to insure life for Sberbank
If you decide not to give up life insurance in order to maintain a low mortgage interest rate, we recommend comparing prices on different sites.
Important point! Neither in the first nor in subsequent years, you are not required to buy insurance from Sberbank (SberStrakhovanie), but can take out it at any accredited company.
The cheapest among reliable insurance companies for Sberbank mortgages is Ingosstrakh. Most of our clients prefer this company.
On Polis812 Ingosstrakh insurance is cheaper than on the company’s website. We provide an additional 15% discount.
Sberbank accepts all insurance issued online through Polis812. We guarantee the authenticity of the mortgage policy..
Take out mortgage insurance
Waiver of mortgage insurance after cooling off period
In some banks, you can refuse insurance after the first 6 months of using a mortgage loan (for example, VTB). A prerequisite is the timely fulfillment of obligations under the contract by the borrower.
You can refuse voluntary insurance by referring to Art. 16 Federal Law No. 2300-1
“On the protection of consumer rights”, which prohibits the provision of one service at the expense of another. Such a transaction is called “Imposed service”. Based on this, the borrower can protest part of the terms of the loan agreement, where insurance of his life and health is a mandatory requirement. To do this, you will need to contact the judicial authorities.
Pros and cons of waiving mortgage insurance
Insurance as a service is necessary not only for the lender, but also for the borrower. The contract is concluded for 20–30 years; for such a period it is impossible to predict the future state of health of the borrower. The presence of a policy guarantees repayment of the loan and interest in the event of insured events, while income from increased interest on the loan (in case of refusal of insurance) is beneficial only to the bank. If the borrower dies during the term of the loan agreement, the obligation to repay the debt falls on the heirs; if there is a policy, the insurance company is obliged to repay the balance of the debt and interest.
If you refuse title insurance, the borrower risks being left homeless with a mortgage.
Taking out a mortgage without insurance will be beneficial in terms of reducing the total cost of the purchased home. Even with an increased interest rate, the amount of overpayment will be lower than with an annual renewal of the insurance policy for 30 years.
How to calculate the cost of mortgage insurance: online calculator
To calculate the price of mortgage insurance specifically for your case, you can use a free online mortgage insurance calculator.
To calculate the price of apartment or life insurance, just enter your mortgage data.
The service will calculate the policy for your mortgage bank (in this case, Sberbank) and provide all available and cheapest options. If you need to take out comprehensive insurance, then you can consider different options for combinations of insurers.
