If the mortgage rate falls, the amount of the borrower insurance becomes in parallel higher than the interest cost of the credit. What are the risks of this rocking movement? How to take advantage of lower rates without paying too much for its loan insurance?
The lowest rates of real estate loans ever reached
Interest rates on mortgages continue to fall. It was believed that they had already reached an abyssal level a few weeks ago, and here they continue to decline, to go under 1%. Your parents, buyers in the 60s and 70s, must tell themselves that they paid a high price for the house you grew up with given the amount of credit at the time. Today, it is at its lowest rate ever. And things could get worse in the coming weeks. Is this good news?
First perverse effect: with the rates that fall more and more, until reaching the numbers never before reached, it is the entire real estate market that is jostled and prices are blazing.
But that’s not all, if the banks are very aggressive on the credit rate that we all compare, the prices of the insurance of mortgages have practically not declined while it is known that its price is very low. excessive.
As can be seen from the chart since December 2018, the average cost of insurance (in TAEA) exceeds that of credit. And, recent rate cuts have further exacerbated the phenomenon.
When the borrower insurance becomes more expensive than the interests of the mortgage
When a bank gives you a home loan, it does so provided you take out insurance borrower. This is not mandatory in itself, but without it, the banks refuse to grant loans, thus protecting you from a failure to pay on your part in case of disability or death. You do not have a choice.
They offer you an assurance that you sign, logically, to get your loan. However, with rates falling more and more, until reaching the numbers never before reached, the whole real estate market is shaken up and prices are soaring. Because at the heart of your mortgage, your borrower insurance becomes an even bigger financial burden. A real height when the rates go down and all signals are green to buy or build!
In concrete terms, for a loan of € 100,000 over 15 years , according to the average figures of banking institutions:
– For a single person, after 35 years, the cost of insurance exceeds the cost of credit and represents 51% of the transaction.
– For a 26-year-old couple, with an insurance rate of 0.26% and an insured portion of 100% each, the cost of credit is 6545.80 € and the cost of insurance is 7800 €. The insurance represents 54% of the total cost of the mortgage.
-For a 36-year-old couple, insurance can represent 64% of the cost of credit
– For a loan of 100,000 € whose co-borrowers have exceeded 45 years the cost of insurance reaches 13,800 € or nearly 70% of the cost of credit!
The table below can be used to better understand the cost of insurance offered by banks.
The low rate of mortgage credit: bad news for senior borrowers
For senior profiles, falling mortgage rates can become very bad news. Thus, senior profiles, from age 56, see the share of their loan insurance soar in the cost of their credit. More importantly, the cost of insurance shifts the total cost of credit beyond the limits of the rate of wear and blocks the implementation of credit.
Low mortgage rates: change loan insurance!
If the drop in rates seems to be good news, it also causes, in many areas, a rise in property prices and if you add the mechanical rise of your insurance borrower, you become a loser!
But, let’s not forget that changing insurance has become a right. As the banks refuse to lower their prices, go elsewhere. You have 12 months to do this at any time after signing the loan and if you let the first year pass, the change remains possible on each anniversary date of the loan offer.
Moreover, some have understood as Sophie de Nantes: “I found the house of my dreams, my banker offered me an unbeatable rate of 1.05%, and as I had blown the agency, I changed insurance online in three clicks the day after the signing of the sale, it made me win 11 000 € »
Many solutions to change insurance exist, change is risk free since the guarantees must always be those required by your bank that validates the change. Two criteria are to remember for your choice: the price, of course, but also the simplicity; require a handling of formalities with your bank that will often make things difficult.