Mortgage-related insurance is one of the issues that generate the most problems when contracting a mortgage loan, before, in and after signing before a notary.
In the Good Finance mortgage simulator the subject has been discussed this week.
And the damage insurance obligation is imposed by the financial institutions’ own need to use these loans and mortgage loans as coverage of mortgage bonds issued by them. It is difficult to explain, but in a nutshell we will say that damage insurance is mandatory for the convenience of the financial institution itself (apart from being useful to us as well).
Characteristics of mandatory damage insurance
- The amount of the insurance to be contracted corresponds to the value for the purposes of the insurance that appears in the appraisal (the ground and the contents are not included).
- The minimum covered risks of damage insurance are: risk of fire (and explosion) and natural elements (storm, natural elements other than the storm, nuclear energy and subsidence of land, hail damage and frost).
Why do they tell us that life insurance is mandatory?
Sometimes we will have heard that mandatory mortgage insurance is home and life insurance (or payment protection, appraisal or car insurance, among others).
What actually happens is that the bank “invites us” to contract a series of related products if we want to be granted the mortgage with the conditions offered. The legality of this type of action is not clear, since it seems that it is to use a position of force to place insurance , rather than to market them.
The practice that if it is legal and does not present interpretative doubts is to discount the interest rate based on the additional products that we contract with the financial entity. The deed stipulates a series of discounts on the differential applied depending on the products or group of products we hire.
For example, a mortgage at Euribor + 0.95 can stay at Euribor + 0.50 if you take out home insurance, the payroll and 3 receipts are domiciled. These bonuses are recorded in the mortgage loan deed.
Will the interest go up if I stop paying the insurance?
It depends on the type of mortgage contracted:
- If the insurance and other related products were a requirement to grant us a mortgage but do not subsidize the interest rate (they do not appear in the deed), we can actually remove them all (except the damage) once the deed is signed or a year.
- If the interest rate is discounted , for each product we stop hiring we will raise the interest rate in the next revision of the fee. Therefore, if you stop hiring an agreed insurance, the interest rate will increase. you have to make numbers to see which suits you best.
The next time a director tells you that he has made you take out insurance because it is mandatory, look at it with a circumspect face and ask: mandatory why ?