A mortgage and mortgage insurance go together. You probably know (or you will find out at the bank, soon), that it is impossible to get a mortgage without first going through a necessary procedure: handing over payslips, approval in principle, appraisals, etc. And among the things you will be obligated to do – this is an obligation to take out mortgage insurance. In the past, the insurance was almost always done through the bank itself. Today, this is just one of several options. We will immediately explain not only what exactly mortgage insurance is, but also how you can reduce it and how significant it is.
Mortgage insurance, why do you actually need it?
The bank requires insurance as part of the mortgage, which is something unique that does not exist in any other loan. Mortgage insurance is important from the bank’s point of view, but it should be noted in passing that it has a significant benefit for the customer as well. From the bank’s point of view, mortgage insurance is a safety net (in banks they call it “safe”). It is a safety net designed to ensure that the bank does not lose money if, God forbid, a dramatic event occurs that may affect your property or your ability to repay. Mortgage insurance has several aspects and highlights:
- You have the right to take out insurance at the bank, through an insurance agency that works with the bank or at any private insurance company as you wish.
- Insurance includes a component called risk. This is life insurance, also known as death insurance. This means that if one of the borrowers dies, the insurance company will close the mortgage – cover the remaining payments. For the bank, there is no fear that if a borrower dies in an accident or from illness, there will be no one to pay the balance. From the point of view of the spouse, or the heirs (remaining), this of course helps financially, since alongside the tragedy, the debt to the bank is erased.
- The insurance also includes a component called building insurance. The insurance comes into action if, God forbid, there is damage to the structure, including extreme situations such as fire damage, water damage, etc. Since the property is mortgaged to the bank, the bank requires that there be insurance. Of course, the insurance benefits you as customers, since if the structure is damaged, the insurance company will cover the damage.
- In order to receive any amount from the insurance company, approval from the bank is required. If necessary, sue the insurance company and inform the bank. By the way, even a change, such as changing the insurance company, will be made subject to the bank’s consent and approval.
Why should you discount the insurance?
Over the years, the banks have used insurance to generate additional profits. Insurance prices through the banks were “inflated” compared to insurance in the private market. The client obviously has a conflicting interest. Let’s remember that the mortgage accompanies each of us for many years. Even if every month you save a modest amount thanks to discounted insurance, in the end it adds up to huge amounts. It can reach thousands and even tens of thousands of shekels.
All the ways to lower the mortgage insurance
Using the following tips, you can reduce your mortgage insurance significantly:
- Never settle for the bank’s insurance offer. Always compare prices and get offers from the different insurance companies. There is no problem contacting insurance companies directly.
- Some banks have established an insurance agency, which provides mortgage insurance. Accept the bank’s offer and check it on the free market. If you don’t have time to take care of it at the time of signing the mortgage, remember that it’s never too late. You can change the insurance company at any time. Just remember to inform the bank about this so that the insurance in the bank is canceled – otherwise you will pay double insurance and it is unnecessary!
- From time to time throughout the life of the mortgage remember to check the insurance prices (life and building) on the free market. If you found a cheaper policy, you can change the mortgage insurance and thus save more, in the payment accompanying your mortgage.
- If the mortgage amount is relatively low, some banks will agree to give an exemption from mortgage insurance. You can consider it, but note that in the end these insurances have a benefit for you as well and not only for the bank.
- If you have private accident insurance (life insurance), no additional insurance is necessary. Check, because you may have such insurance from your workplace. Check with the employer or arrange your private insurances. If you have such insurance – you have the full right to attach it to the mortgage and you will not have to pay for another insurance.
- Even with home insurance, if you have private home insurance, you can register the insurance for the benefit of the mortgage. Contact the insurance company and ask them to write a clause that will work on the policy. A binding clause turns the insurance into mortgage insurance for everything, so you won’t have to pay a shekel for additional insurance.
