When you buy a mortgage , you commit to large sums and over long periods. Several hundred thousand euros over periods of 15, 20 and even 25 years.
The bank studies the financial situation of the borrower (s) and will only grant the loan if the household income is sufficient and the debt ratio is reasonable (Each bank has its own criteria but in general it is accepted that the debt ratio must be less than 30%). Some organizations also study the rest to live, it is the sum remaining at the end of the month when all fixed charges have been settled.
Thus the bank minimizes the risk of unpaid bills. But she also takes other guarantees.
Loan insurance is a guarantee for the bank but also for the borrowers .
The situation of a household at the time of signing the loan is not fixed in time, indeed many hazards can arise. (death of one of the co-borrowers, serious accident or illness causing disability, loss of employment). Banks know it, for this reason they will grant a mortgage only on the condition that it is accompanied by a borrower insurance (also called loan insurance).
Loan insurance takes over in case of death or disability. In these cases, she repays the credit to the bank. There are several types of quotations: 200%, 100%, 50/50 etc ….
We will explain its operation through 3 examples.
- Example 1 : Mr. X has only subscribed a real estate loan with 100% coverage, if he comes from, the insurance will repay the balance of the loan to the lender. His heirs will not owe anything to the bank.
- Example 2 : Mr. and Mrs. Y, borrowed for the purchase of their apartment, each being covered by the insurance of 100% loan , (quota of 200%), if one of them dies: The insurance will refund the full amount of the outstanding capital. The survivor will no longer have mortgage loans to repay.
- Example 3 : Mrs. and Mr. Z had a house built. The bank has granted them a home loan, which is accompanied by a 50% insurance on the head of each of them. In case of departure of Mr Z. The borrower insurance will refund 50% of the sums due to the bank. Thus the monthly repayments of Mrs. Z will be reduced by half.
In general, banks ask borrowers to subscribe at least a life insurance, disability, disability . But it is also possible to guarantee against a job loss, which allows you to see its deadlines settled (all or part depending on the contract), as long as the insured is unemployed.
OUR OPINION and OUR ADVICE :
- For a couple the 200% quota is the most secure , of course the monthly cost will be higher.
- If you opt for a “shared” quota, we advise you to guarantee according to your respective income . Indeed it is possible to choose quotations other than 50/50.
- Example : If the monthly income of Mr. are 2000 euros and those of Madame amount to 3000 euros, it is wiser to take a quota of 40/60. Thus in the event of misfortune, the survivor will see the reduced monthly payments in proportion to his ability to repay.