The cost of home loan insurance should not be overlooked when looking for financing. Since 2010, the year of application of the Lagarde law, you have the right to take out borrower insurance outside your bank, which can give you the benefit of a lower rate. The home loan insurance rate is a point of comparison but it is not the only one.
What is the loan insurance rate?
Do not confuse the mortgage loan insurance rate with the mortgage loan rate. Indeed, the rate of your home loan represents the interest rate of your financing. It corresponds to the monthly loan payments that you repay. The home loan insurance rate calculates the monthly payments for your credit insurance. These are added to the monthly payments of the loan.
For example :
You get a rate of 2% over 25 years for a loan of 131,000 USD. The interest rate represents the total cost of your loan, ie 42,452 USD over 25 years, including 6,878 USD of insurance if you have a group insurance rate of 0.21%.
The mortgage loan insurance rate is included in the monthly mortgage payments. You pay 23 USD per month for insurance and 555 USD for the monthly loan, i.e. an overall monthly payment of 578 USD.
The TAEA or the effective annual insurance rate indicates the overall cost of the insurance. This includes the nominal rate and adds the various costs linked to the loan: application fees, commissions, insurance maturities, etc. It will therefore correspond to the actual amount of your monthly payments. In addition, the monthly insurance payments are added to that of your loan. It is therefore essential to make the comparison between group insurance and individual insurance, the TAEA will allow you to make the comparison more easily.
How is your home loan insurance rate calculated?
Home loan insurance pricing varies from one insurer to another. It is nevertheless based on the profile of borrowers.
Many factors thus influence the applied rate of insurance: age, smoker or non-smoker, state of health, amount of the loan, professional travel, professional status, etc. The mortgage insurance rate can therefore vary from simple to double.
The choice of cover included in your insurance can also affect the price. In order to illustrate the difference between the different profiles, we offer a comparison table for a typical profile.
How are repayments of capital and the amount of insurance changing?
- During the first year of the mortgage, the borrower mainly repays interest. Over the years, the borrowed capital is gradually amortized. The mortgage loan insurance monthly payments, calculated on the capital remaining due, decrease according to the repayment thereof. They are higher with the evolution of the age of the borrower and the repayment of capital during years 2, 3, 4 and then generally decrease after this period.
- The higher the age of the borrower, the higher the mortgage insurance in individual insurance.
How is the mortgage loan insurance rate calculated?
The methods for calculating the effective annual rate of home loan insurance or TAEA are governed by decree published in the Official Journal on October 17, 2014. “The TAEA is calculated by subtracting from the overall effective rate of the credit including any insurance offered the overall effective rate credit without any insurance. In order to ensure that the consumer is fully informed, the decree specifies that the TAEA is accompanied by the mention of guarantees (death cover, incapacity for work guarantee, IP / IPT / IPP invalidity, loss of employment) including it includes the cost ”.