What is mortgage insurance – not all potential borrowers of credits know about this? In this regard, people have many questions about the legitimacy of banks that “impose” insurance for mortgages. All mortgage programs of commercial banks involve the signing of insurance contracts. We will give more details about the types of mortgage insurance available.
Insurance of real estate
Such a contract implies the insurance protection of the object of the mortgage. The list of risks usually are as follows:
-illegal actions of third parties, etc.
Other risks can be included at the request of the bank or at the request of the borrower. The size of the tariff depends on many factors: the location of the object, its technical characteristics, condition, etc. The insurance amount is usually equal to the cost of housing, which was determined by an independent expert-appraiser. Sometimes, without a property insurance contract, the bank will not issue credit funds. If the current term of the current contract is over and the borrower does not renew it, then the bank may apply penalties. This may be both an increase in the interest rate and a requirement to repay the debt ahead of schedule. Usually, before the conclusion of the contract, the representative of the insurance company inspects the property and checks the documents. Hiding important information can lead to the fact that in case of an insurance event the company will refuse to pay compensation. This can entail serious consequences for the borrower, especially if the property is not recoverable due to damage. This means you need to be careful and read all the details.
Signing such a contract is not a legal requirement. But many banks motivate borrowers to sign one offering, in this case, a lower rate on the loan. The borrower, who wants to save money and refuses the contract, might end up paying higher monthly payments and has no insurance coverage.
The insurance amount is usually 10-15% higher than the loan amount. Thus, the bank tries to protect itself and against the loss of accrued interest. Personal insurance usually implies the following set of risks:
-loss of ability to work due to disability;
-death of the borrower, etc.
The contract may also provide protection against loss of income. The tariff for such a contract depends on many factors: age, the scope of work, the health status of the insured, etc. Many companies require a certificate of the health of the client, as well as filling out a questionnaire, which indicates all information about the possible risks to life and health (for example, engaging in extreme sports, etc.). Hiding it can lead to the fact that the insurer refuses to pay compensation.
This contract usually causes the borrowers the greatest number of questions. Title insurance implies protection of property rights. In other words, if the ownership of the borrower’s property is contested in court, the insurance company will pay the borrower compensation. Typically, banks require title insurance after the analysis of documents. This can be when selling the property by proxy, when the owner was a minor, the change of several owners over the past three years, etc.
Recently, it is a common practice when a bank and an insurance company offer a borrower to sign a complex insurance contract, which includes all of the above risks. Signing such a contract might be a better idea since usually, it is less costly for a client compared if the client signs each insurance contract separately.
Features of insurance for a mortgage loan
The main feature of insurance when registering a mortgage loan is the fact that the bank is the beneficiary. Usually, the creditor offers a client a choice of several companies with whom they are in partnership. But the borrower has the right to sign an agreement with any insurance company. On the other hand, the creditor usually checks the insurer before the signing the partnership agreement, and this reduces the likelihood of various fraudulent actions. But even this practice allows the risk that the company does not pay reparation under various pretexts. As a result, the client may lose housing and remain with an outstanding loan. The only way to solve such a problem is filing a lawsuit in court. If the loan is repaid ahead of schedule, a partial refund of previously paid payments is possible. To do this, you must apply to the insurance with the appropriate application. As a rule, not the whole amount is returned, but with a partial withholding of the penalty.