What you need to know when extending a mortgage insurance policy
March 8, 2019
At the initial registration of a mortgage loan, the client pays insurance only for the first year. No matter how great the temptation is not to pay insurance for future years, it should be remembered that the extension of the policy is the responsibility of the client under the loan agreement, for the failure of which the bank may apply penalties.
The client does not always have the financial ability to pay for the policy. Consider possible ways to reduce the premium.
Exclusion of voluntary types of insurance
When a borrower is faced with the problem of paying for a mortgage insurance policy, the most obvious solution seems to be the rejection of types of insurance, the obligation of which cannot be assigned to the borrower under the Federal Law “On Mortgage”. The exclusion of life and health insurance and title insurance will help reduce the insurance premium by 60-80%. But before giving up part of the risks, it is necessary to calculate how much it will be profitable.
First, you should study the loan agreement regarding the provisions governing the actions of the bank in case of refusal of the borrower from insurance. Depending on the lender and the limitation of the loan agreement, the bank may provide for a demand for early repayment, an increase in the interest rate on the loan or the absence of any consequences. The demand for early repayment is usually provided in the credit documentation drawn up more than five years ago. Therefore, seeing exactly this wording, you do not need to immediately write complaints to the supervisory authorities about the imposition of additional services, but it is better to contact the bank. As a rule, banks go towards the client and, depending on the financial capabilities of the borrower, change the consequences of refusing insurance.
If the loan agreement provides for an increase in the interest rate, then contact the bank with a request to prepare a schedule of monthly loan payments taking into account the increased rate. Estimate how convenient it will be for you to pay an increased monthly payment, calculate the size of the annual overpayment taking into account the increase in the interest rate. It is possible that an overpayment on a loan will exceed the cost of the insurance premium, while you will not receive the desired savings or insurance coverage. If, according to the bank’s terms, the refusal of voluntary types of insurance does not affect the conditions for granting a loan, then you can write a request to the insurance company to exclude risks from insurance coverage and recalculate the insurance premium for a new period. But it’s worth remembering that in doing so, the reimbursement of risks associated with the illness and death of the borrower as well as with the loss of ownership, lies entirely with the client. And in the event of an unforeseen event, it will still be necessary to fulfill all obligations to the bank.
Insurance Amount Reduction
At the initial registration of a multi-year policy, the set of insurance documentation includes a schedule of annual insurance payments that sets the amount of insurance amounts and contributions for the entire insurance period. To calculate the insurance amount for future periods, employees of the insurance company rely on the planned balance of the amount of debt indicated in the schedule for the loan. Many customers pay the policy according to the schedule of insurance payments, not paying attention to the established insurance amount. But during the term of the insurance, the client can partially repay the loan ahead of schedule. Therefore, for the new insurance period, the insured amount and the premium must be less.
Not all banks annually provide insurance companies with up-to-date information on the outstanding balance of their customers. In order to recalculate insurance payments, the client must independently inform the insurer and, in advance of making the payment for the next year, provide an up-to-date schedule of loan payments. One of the most common misconceptions is that if a partial early repayment occurred at the client in an already paid period, then at the end of this period the insurance company will recount the insurance amount and return part of the contribution. Usually, insurance companies recalculate the insurance amount only once a year, just before making the next payment.
Before making a payment for the next insurance period, check with the insurance company for the possibility of providing a discount. For the purpose of retaining a client, many insurance companies are ready to provide a discount of 5-20%, depending on the insurance object, the health of the client, the size of the insurance premium and the term of the policy. Discounts for each client are considered individually. To this end, the client may be asked to fill out additional questionnaires confirming that the degree of risk has not changed: redevelopment not agreed with BTI has not been carried out, the state of health of the client has not worsened, etc.
A significant discount can be obtained in terms of title insurance after three years from the date of registration of ownership. Also, if you received a mortgage loan more than three years ago, there is a possibility that since then the tariffs in the company itself have changed downward and you can be re-calculated the schedule of payments at reduced rates. If the conditions offered by the insurance company still do not seem acceptable to you, it is worth considering the possibility of changing the insurance company.
Change of insurance company
Not always the insurance company, which provided the most favorable conditions for the first year of insurance, will have the best offer for the next year. It is better to preoccupy yourself with this issue and before paying the insurance premium for the next year, contact other companies to calculate the cost of insurance. The choice of an insurer for a new insurance period is no different from the selection process at initial registration. When transferring to another company, you should remember that you are a new client for this company, and the entire process of submitting documents and filling out applications will have to be repeated.
The insurance company may request a current valuation report from the client to confirm the market value, which you must order at your own expense. It may be necessary to undergo a medical examination, which, although free for the client, but requires time. The insurer may request documents of title for a previous real estate transaction that the client might simply not have saved, etc. It is also worth considering that the transfer to another insurance company must be agreed with the bank. Changing an insurance company is a rather laborious process and is time consuming.
If there was no partial prepayment of the loan, the insurance company provided a possible discount, and the size of the insurance payment is still large, then you should think about the installment plan of the insurance premium.
Typically, insurance companies provide an installment plan of the premium for two equal payments without increasing the tariff. At the same time, in order to make a decision on granting installments, insurance companies may require written approval by the bank, since under the terms of the insurance contract payment must be made annually, and all changes to the contract can be made only with the consent of the bank. The bank considers the application within three to 30 days, and in some banks this procedure is not free. Therefore, time and financial costs should be considered.