Mortgage insurance: what will it cost in 2023?
Borrower insurance is one of the elements that the bank requires when you apply for a mortgage loan. Its cost is added to the interest, costs of case papers and guarantee. Negotiating the contract allows you to make savings, significant savings, even if the enactment of the Lemoine 2022 law increases prices. Mortgage insurance: a significant cost The loan interest rate or the nominal interest rate on a mortgage loan, which expresses the interest that must be paid to the bank for the service provided, does not make it possible to know the total cost of the loan. Other costs are taken into account when calculating the APR or Global Effective Annual Rate, indicator of the final costs: the administrative costs the guarantee (mortgage, deposit) the borrower’s insurance premiums. In ÅOP, the insurance is expressed as a percentage of the initial capital or the remaining due capital. Depending on your borrower profile, i.e. the risks you represent, the insurance rate is more or less high: between 0.11% and more than 1% of the amounts lent. On average, borrower insurance makes up between 30% and 40% of the total cost of a mortgage, the second cost item after interest. When you take out the policy, you fill in a mortgage insurance questionnaire, which informs the insurance company about: your age: the older you are, the higher the premiums. your state of health: relative to age, seniors pay more for their borrower’s insurance than younger people due to higher health risks. You must provide your health history and current treatments. your occupation: insurance is more expensive for people with high-risk jobs (military, firefighters, security guards, construction workers, etc.). your habits: the practice of a risky sport is punishable (climbing, motor sports, diving, etc.), as is smoking. your real estate project: the nature and duration of the reimbursement is decisive for the pricing of the insurance. In case of significant risks (health, business, dangerous practices), the insurance company can apply exclusions of coverage, i.e. a claim (work stoppage, accident) caused by the identified risk will not be covered, except in the case of an exclusion buy-back offered as an option at the time of subscription. Back diseases and psycho-psychiatric diseases, called non-objective diseases in the loan insurance, can be redeemed against an additional borrower insurance premium. Borrower insurance and the Lemoine law Despite the Lagarde borrower insurance law, which has been in force since 2010, more than eight out of ten borrowers take out the insurance offered by their bank. Although the Hamon and Bourquin laws in the meantime made it possible to terminate the current loan contract, the banks maintained their quasi-monopoly on this product with high profit margins (up to 70%). Conversely, alternative insurance companies, up to four times cheaper. The legislator wanted to introduce more competition by strengthening borrowers’ rights. The Lemoine Act, passed in February 2022 and taking effect on June 1, represents a major advance in mortgage insurance by allowing the contract to be changed at any time without waiting for the expiration date. Mortgage insurance thus becomes the only insurance that can be terminated at any time without a minimum commitment of one year, which the regulations require for home insurance or mutual health insurance. The borrower is no longer bound by his bank and can cancel the insurance agreement the day after signing the loan offer and replace it with a more competitive offer. At the end of the day, thousands of euros in savings over the remaining repayment period. For a €250,000 loan over 20 years, replacing bancassurance with an external formula generates more than €15,000 in savings. To the change of the insurance at any time, the Lemoine law adds two other devices: the expansion of the right to be forgotten: if you have been cured of cancer for at least 5 years, you do not have to mention your previous illness in the health questionnaire. People who have been cured of hepatitis C for at least 5 years are also eligible for this right. the end of medical selection under certain conditions: insurance companies cannot seek any information related to the borrower’s health for loans under €200,000 repaid before their 60th birthday. The Lemoine Act improves access to mortgage insurance thanks to these two inclusive measures, but these have a detrimental effect, namely the increase in prices for the community. The lack of risk-based pricing forces insurers to reciprocate, raising premiums for borrowers belonging to those segments. Young workers without health obligations are paying for older borrowers and those who would normally have been stigmatized by their health history. Mortgage insurance brokers estimate that premiums have been 20% more expensive on average since the introduction of the Lemoine Act. With some providers, the additional costs can go up to 40%. The regulations plan to assess within two years the impact of the Lemoine Act on pricing and on any unequal treatment between borrowers. However, it can be assessed that active competition will make it possible to control the additional costs for borrowers in 2023. Mortgage insurance: comparable, negotiable and substitutable Regardless of whether it is upstream or downstream of a mortgage loan, borrower insurance can be chosen freely. If you were unable to draw up a delegated offer when you applied for a loan, you can change it whenever you want. Use a home loan insurance comparison tool to compare offers and choose the one that meets your needs at the best price. To make the process easier, use the services of a loan insurance broker. At Magnolia.fr, our team of experts takes care of the entire cancellation/substitution procedure, in accordance with the equivalence of guarantee level, prior to the bank’s acceptance of delegated insurance.