Before signing a mortgage agreement, you should carefully read its terms and conditions. It is important to consider that when financing the purchase of real estate, mandatory mortgage insurance is required, and many borrowers wonder whether it is necessary to pay it every year.
Considering that all actions related to money are documented, and insurance companies stipulate in detail all the nuances in the contract.
What is mortgage insurance?
If a client receives a consumer loan, the bank does not insist on choosing an insurance company, but mortgage lending requires stricter control on the part of the lender. Banks have white lists and their own companies that insure borrowed funds.
In practice, the client can be offered a whole range of insurance services, but it is important to take into account that the legislation only provides for real estate insurance.
The cost of an insurance policy is influenced by such indicators as:
- Type of lending program.
- Mortgage term.
- Estimated cost of purchased housing.
After determining the insured amount, it is multiplied by the tariff and divided by one hundred. In general, the amount of the annual insurance premium, depending on the category of the contract, varies from 0.3 to 0.6%
.
What benefits does taking out an insurance policy provide?
For both the bank and the borrower, the insurance policy is a guarantee of loan repayment in the event that unforeseen circumstances happen to the borrower and he cannot repay the loan on his own. In this case, the insurance company takes over the loan payment. Part of the funds can be sent to the client to solve his problems. If insurance is purchased, the borrower’s relatives will not have to repay the loan for it, and the borrower himself does not risk losing his home. In addition, some borrowers argue that paying with insurance may be more profitable than paying for a home loan without it.
Pay or ignore?
Many bank clients have a question about whether it is possible to refuse insurance services, and what will happen if they do not pay mortgage insurance. failure to fulfill obligations is fraught with the following consequences:
- If the borrower stops paying the installments, the bank gets involved. First of all, the client receives messages or periodically calls from specialists.
- If payment is not received, the bank goes to court with an initiative to early repay the borrowed funds.
What decisions can the court make:
- A decision by court to repay the entire loan amount.
- Some lenders apply interest rate hikes.
- A penalty may apply.
- Judicial recovery. If the client does not respond to calls and SMS, continuing to wonder whether it is necessary to pay mortgage insurance, the court obliges the borrower to pay the debt, penalties, interest and all legal costs at the expense of the lender.
In cases where something happens to the apartment, it is necessary to notify the lender and the insurance company. And many people have a question about what will happen if, when an insured event occurs, the insurance is not paid, or simply does not cover the expected expenses. According to the bank's explanations, such situations are not acceptable, since the lender does not allow any part of its money to be unguaranteed.
How do banks make money on insurance?
The banking channel remains the main one for sales of insurance products in Russia, the Central Bank reported (.pdf).
At the end of 2021, the volume of collected insurance premiums amounted to 1.48 trillion rubles. Insurers received three quarters of their contributions from intermediaries, and half of this amount - or about 555 billion rubles. - from banks. The commissions charged by banks for bringing new clients to insurers increased by 9.1 percentage points over the year, to 36.6% of premiums. More than half of such income (66.4%) was provided to banks by life insurance of borrowers.
Banks can try to reduce the resulting costs at the expense of insurers. “The bank will choose the insurance company itself and, most likely, dictate its terms, because the negotiating position is stronger. Surely, insurance rates will decrease significantly - banks will choose either companies with the lowest rates, or will turn to their subsidiaries. There may be risks of dumping and the fact that banks will pay less attention to the reliability and ratings of insurance companies,” Yanin lists. He does not exclude that borrowers will also share the financial burden.
Analysts predicted a collapse of the insurance market due to the crisis and coronavirus Finance
Banks will try to compensate for the shortfall in commission income by raising mortgage rates , says Mikhail Doronkin, head of bank ratings at the NKR agency. “If banks want to compensate for this burden at the expense of borrowers, this may well lead to an increase in average mortgage rates. Today, a similar measure is already being practiced: for borrowers who refuse mortgage insurance, as a rule, higher loan rates apply,” he warns.
Borrowers are unlikely to benefit from a change in the approach to mortgage insurance, believes Valery Piven, director of the ACRA group of financial institution ratings: “Banks will try to maintain the margins of mortgage products. Most likely, insurance costs will be included in the rate.”
Life insurance – mandatory or imposed?
This demand from banks is unlawful.
. The bank can offer the client this type of insurance. This happens in cases where:
- The client has health problems.
- He is engaged in hazardous work.
- He is interested in extreme sports.
- The work involves a threat to life and health.
To prevent the situation, you can immediately submit a certificate from a medical institution about good health. If you do not pay for this type of insurance, the bank does not have the right to take measures to fully collect the debt or increase interest rates.
Frequently asked questions about mortgage insurance
What are the conditions for granting a military mortgage?
The state program of preferential lending to military personnel for the purchase of housing is regulated by Federal Law No. 117, which has been in force since the beginning of 2009. Loans are given to officers, enlisted personnel, and students of military educational institutions who have been participating in the NIS (savings and mortgage system) for at least 3 years. The loan term is no more than 25 years. Amount - up to 2.2 million rubles.
What to do for registration:
- Apply for a certificate to Rosvoenipoteka;
- Select real estate (in any region of the country) that meets the terms of the program and the bank’s criteria;
- Collect documents that the lender needs;
- Submit a loan application and wait for the bank’s decision.
The starting fee is at least 10% of the cost of the property. If the cost of real estate is higher than provided by the program, the borrower pays the remaining amount with his own money.
Life insurance is mandatory for military personnel (FZ-52 dated March 28, 1998). The bank has no right to require the military borrower to once again obtain life insurance for the mortgage.
Is it possible to transfer a mortgage to another person?
Re-registration may be required in case of divorce, loss of the borrower’s ability to work, relocation, or significant deterioration in financial situation. Replacement of the borrower is permitted only with the consent of the mortgagee, provided that the new debtor meets the lender's criteria in terms of income level, financial reputation, employment (confirmed by documents).
During the period of preparation and collection of documents and consideration of the application, the previous borrower continues to pay the loan in order to avoid delays. To renew the agreement, the creditor may require the new debtor to make an assessment of the collateral. Insurance (life, real estate, title) is issued to the new debtor.
Is it possible for a Russian citizen to get a mortgage abroad?
Can. Before the pandemic, Israel offered attractive conditions (3.5%). In Spain, you could choose a suitable interest rate system - fixed (4-5.5%), floating (minimum 2% per annum), mixed. The maximum loan period is 40 years.
Foreign banks issue long-term housing loans on the same terms as in Russia, the registration procedure and package of documents are approximately the same. The main difficulty in obtaining a loan is proving your solvency.
Mortgages are issued in euros, dollars or local currency, so citizens who receive income in rubles risk spending more money than they expected.
As for life insurance, rates abroad are 5-8 times lower than here, the protection is more thoughtful, for example, one policy protects both spouses for the risk of death.
Consequences of non-payment of insurance at Sberbank
Many contracts are concluded at Sberbank, which is stable and reliable. The bank offers one mandatory type of home insurance; all others are considered additional and are insured on a voluntary basis.
Payment of the insurance amount involves an annual one-time payment. If the client does not have the opportunity, the amount can be divided into equal parts into four payments.
In case of late payments, Sberbank:
- Notifies the debtor
in writing or by email. - Has the right to apply penalties
provided for in the current agreement. - Consider the issue in court
by filing a claim against the debtor.
If the client did not pay the insurance premium on the military mortgage, but the agreement was signed by the borrower, all points must be met and payment must be made on time.
Tax deductions for insurance
Tax deductions for mortgage lending depend on two factors:
- The amount of personal income tax that the client pays when calculating wages.
- The cost of the acquired real estate.
A tax deduction is applied to insurance and the total loan amount in the following cases:
- Registration of a mortgage for the purchase of real estate.
- Obtaining a loan to build a house.
Even if the applicant plans to quickly close the loan debt, paying for insurance is a mandatory requirement. Therefore, you should not count on receiving an uninsured loan.
It is important to obtain information on all possible loan offers in advance. The best solution is the services of a credit lawyer. Especially if you need to get a mortgage. Particular attention should be paid to those products that are mandatory and those that can simply be imposed on the client.
Refund
Many clients are faced with questions about whether borrowers are required to pay regular fees, and how to return money for mortgage insurance at VTB or Sberbank. Refund of insurance, according to law, is possible only in the following cases:
- Return within a month. The amount will be returned minus the days during which the borrower used the loan money.
- For a period of up to three months, the opportunity to return insurance payments is 50%
of the premium paid. - Upon completion of all financial obligations. No more than 70% of the funds spent can be given back to the client.
Since 2021, legislation has provided borrowers with the right to receive back funds in court for the insurance that was imposed by the bank. However, you can apply for compensation only after the debt has been fully repaid.
If you signed a life and health insurance contract and later found out that this was an optional service, you can get your money back by sending an application to the bank. You can download this application form by completing a short survey.
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Why do you insure your mortgage?
Let's start with the fact that there are several types of mortgage insurance. The main and mandatory insurance is the purchased apartment or house (any collateral property). And there are voluntary types of insurance - life and property rights (title).
The most expensive type of insurance is life and health insurance. In this type, there are many individual factors that affect the final cost. Therefore, for some clients such insurance can cost 10 thousand rubles, and for others 30-50.
