Back to the formula for calculating the cost of borrower insurance and how to compare the different offers. benjaminlu.net fleshes this out
The annual effective insurance rate (TAEA) is the indicator which makes it very easy to compare the cost of the contracts offered to a borrower to insure his mortgage. As indicated in article L311-4-1 of the Consumer Code, the TAEA must appear in the application so that the insured can calculate the cost of his insurance.
Compare borrower insurance offers with TAEA
The amount of credit insurance per month is calculated as follows: multiply the insurance rate by the capital and divides the whole by 12. A simple multiplication by the total number of monthly payments makes it possible to obtain the total amount of insurance over the entire duration of the credit repayment. Depending on the specifics of a contract, the insurance rate is multiplied either by the amount borrowed or by the capital due due discounted once a year.
The TAEA only expresses the cost of insurance, which means that the guarantees and the conditions of cover must be studied in detail for the comparison to be effective. Whether before the financing is put in place, during the repayment period or when buying a mortgage, insuring your loan with another organization requires requesting the Standardized Information Sheet (FIS) provided free of charge by the lender. Its role is to summarize the essential guarantees that the new contract must also cover for borrower insurance to be delegated.
Why is bank loan insurance more expensive?
For borrowers, it is not easy to take out credit insurance knowingly. Already because the technical aspect of the product can put off. But also because the banks that lend capital for the needs of a real estate project sometimes go ostrich when it comes to addressing the existence of the insurance delegation.
Senator Martian Bodin, at the origin of the device, intends to motivate banking establishments to play the card of transparency. With its new amendment, which MPs will consider in April, banks may be required to inform their customers annually that they can, if they wish, change loan insurance on the anniversary of their contract. All professionals who fail in their duties will face a fine of $ 15,000.
The lack of transparency on this subject is not a surprise, however. The contracts that cover the loans are an essential source of profitability for the banks. The insurance premiums paid by the borrowers partially offset the fall in bank interest. To improve their margin and find satisfactory profitability with the mortgage, banks therefore systematically offer their credit insurance contract, dubbed the group offer.
Change insurance for a cheaper and better adapted offer
This group insurance is often costly to the point that the addition of premiums can approach or even exceed the sum of interest with successive rate cuts since 2016. Delegating insurance can thus lead the borrower to achieve great savings thanks to the opening of the market to competition which has cut prices.
If it can only be ten euros per month, the total amount less to pay can quickly increase to several thousand euros. The delegation of insurance is therefore an opportunity to lower the cost of its coverage, but also to better adapt the terms of the contract to its current situation and thus benefit from tailor-made protection.
If the delegation of insurance is launched after the release of funds, the borrower can terminate his initial contract during the first year of the credit and, after this period has elapsed, on each anniversary date. Attention, the steps must begin at least 2 months before the date of signing of the loan offer, or on any other date mentioned in the loan contract, by sending a registered letter to the bank.