Since the property is purchased on mortgage on bail, i.e. until the apartment is pledged from the bank until the loan contract is fully repaid, the bank requires that the property be insured for the whole term under the loan agreement. This is a guarantee for the bank that the loan will be repaid even in case something happens to the apartment (fire or natural cataclysm). This service is required.
What is home mortgage insurance?
Before you make a mortgage, carefully review the requirements of banks for property insurance. Also, before insuring your property, familiarize yourself with the contract and insurance regulations. Some banks require that only home insurance be issued, others impose additional life and health insurance and other insurance policy options when applying for a loan, informing the customer.
According to the legislation of the Russian Federation, property insurance is obligatory when you make a mortgage. But many banks are afraid for a loan and under the guise of compulsory demand to insure an apartment against property damage and other types of damage.
Also, most banks work closely with insurance companies, and some even have subsidiaries involved in insurance. It is very beneficial for such banks to additionally impose life and health insurance, where the insured risks are obtaining disability of the first or second group, as well as death. Or title insurance, when in case of loss of rights to the apartment insurance payment occurs. Loss of rights to real estate can happen if the registration of the contract was illegal, i.e. the apartment was sold by fraudsters.
There are still some features when purchasing housing in the mortgage. For example, when buying an apartment from a new developer, the future owner does not make sense to purchase title insurance, but many banks leave the title to the main criterion when issuing a loan. It is also worth considering that the title is beneficial only for the limitation period, and some banks require title insurance for the entire term of the mortgage. If the client already has a home insurance contract that is mandatory when issuing a mortgage, then it is worth considering that not all banks will be able to issue you a loan, since many banking organizations have their own list of accredited insurance companies. It is necessary to take into account these factors to make the contract cheaper.
How much will it cost to insure an apartment?
When an insurance event occurs, the insurance company pays the principal amount and interest on the loan agreement according to the original payment schedule, freeing you from credit obligations to the bank. But there is also a type of insurance in which the insurance company pays the full cost of housing, i.e. it pays the loan obligations to the bank, and you get the difference to your bank account opened with any commercial bank.
Insurance events have a specific tariff and are calculated individually for each specific client. It depends on what you get in the mortgage: new building, Khrushchev, etc. Typically, the rate varies in the range of up to 0.5% of the cost of housing. The rate depends on many parameters, such as the floor and floors in the house, the type of house, interior decoration and much more.
The client is also obliged to apply to the companies involved in the appraisal of the apartment in order to provide its value, if it concludes a contract for real estate insurance. If a title insurance contract is made, then you must provide information on the previous owners. Also on the cost of the title itself affect the conditions of sale of the apartment. Depending on these conditions, the title rate will be up to 0.7%. Many insurance companies immediately offer a comprehensive type of insurance: property, title, life and health of the borrower. The cost of the premium will be around 1.5% of the amount of the mortgage. But it is worth remembering that it is cheaper to arrange not a complex entirely, but each type of insurance separately.
To pay the insurance premium will have annually. Before the anniversary of the mortgage bank sends information on the amount of customer liabilities under the loan agreement. Based on these data, the insurance company calculates, according to the tariff, the cost of the insurance premium. As a rule, the client has a month of grace period when it is necessary to pay an annual fee. Accordingly, as the principal debt decreases, the insurance premium also decreases.
Title insurance and real estate insurance is insured either from the moment when a loan is issued, if it is a new building or secondary housing, or when property rights are issued, if it is housing during the construction phase. If the client admits arrears on the insurance premium, the bank charges penalties. With these conditions and the amount of fines can be found in the loan agreement, which is made out in the bank.
How is mortgage insurance calculated?
Basic principles of insurance premium:
- the size of the insurance premium depends on the amount of the principal debt of the loan;
- the size of the insurance premium depends on the interest rate on the loan agreement;
- paid on the anniversary of the contract;
- terms of payments change in case of full early repayment.
Now let’s give an example of how to independently calculate the estimated amount of the insurance premium. Take for this the following conditions:
- the cost of the principal debt on the mortgage: 2 500 000 p .;
- interest rate: 12.5%;
- mortgage term: 180 months;
- date of the contract: 07/20/2016;
- First date of debiting according to the schedule: 07/25/2016.
Calculate the amount of the insurance premium a year after the contract. To do this, apply the formula:
G = J + K * J, where:
J – the amount of principal debt
K – annual interest rate.
The amount of principal debt can be found in the payment schedule that the bank provided during the execution of the contract. Or in your personal account in the Internet bank, as well as by contacting the banking organization directly, for example, by calling them.
Suppose that in our case the principal amount is 2,300,000, hence the following:
G = 2 300 000 + 0,125 * 2 300 000 = 2 587 500 p. This is the amount to cover insurance. Based on this figure, we calculate the amount of the insurance premium according to the formula:
X = G * p / 100 , where:
X – annual insurance premium;
G – the amount to cover insurance, calculated by us;
p – the rate provided by the insurance company. This tariff is made up of those types of insurance to which you are connected. Let’s take that we have issued only compulsory property insurance, and its tariff is 0.3%. So:
X = 2,587,500 * 0.3 / 100 = 7,762.5 p.
We are obliged to deposit this amount to the insurance company’s account a year later under our mortgage agreement in favor of insurance. Thus it is possible to continue to calculate the contribution.
Insurance of an apartment
In a commercial bank Sberbank is a comprehensive type of insurance. Sberbank offers to insure real estate, title insurance, life and health of the client. Insurance events for real estate pledge are: damage caused by third parties, fire, gas explosion, lightning and hurricane. The cost of insurance premium depends on several factors:
- principal amount;
- annual interest rate;
- age of the client;
- previous history of transactions under collateral agreements;
- income level;
- work places;
- locations of real estate;
- term of the loan agreement.
Comprehensive insurance in Sberbank is mandatory. You can not only arrange real estate insurance. Sberbank also has a list of accredited insurance companies with which it is ready to cooperate. If you want to choose another organization, you will have to wait for approval from the bank. Payments are differentiated, and you can calculate them according to the formulas that we published above. Sberbank also stipulates that the rate for each individual insurance contract does not exceed 0.15%. If you are faced with an insurance company that overestimates the rate, you can complain to the bank.