Posted by Larry Jones on August 4, 2019
Most banks require that when the mortgage is entered in the land and mortgage register, the so-called bridging insurance. In addition, it is worth buying a life insurance policy. What’s more, you should pay attention to insurance against job loss and real estate. You can get the policy from the bank or on your own.
Mortgage insurance is optional
Interest in mortgage loans is growing. This state of affairs is influenced by rising gross remuneration and low interest rates. Also, many consumers give up investment deposits for the purchase of real estate for rent. According to BIK, the average amount of a housing loan in the first six months of 2017 was 220.8 thousand. PLN and was higher by 6.6% compared to the same period in 2016 1.
A mortgage is a very serious financial obligation. Usually the loan amount is determined up to 80% of the property value. The Mortgage Act does not regulate the insurance of this financial product. Therefore, buying insurance policies is optional in Poland. However, it should be noted that most banks require that they buy appropriate insurance for the loan, at least for the time of entering the mortgage. After entering the mortgage, you can opt out of credit insurance.
In the case of loans in francs, insurance against currency risk is in principle impossible. Collateral against exchange rate changes usually involves converting the entire liability. Fortunately, the CHF rate is falling, and the presidential bill on support for borrowers gives franchisees a chance to repay the loan easier.
What is bridging insurance?
Bridging insurance is a loan collateral for the time the mortgage is entered in the land and mortgage register. In the light of the applicable regulations, this is not obligatory, however, the lack of purchase of such a policy may result in a refusal to grant a loan. Because the initial repayment period is the most risky for a bank. Bridging insurance is a protection for a financial institution if the borrower stops paying the installments in so-called bridging period.
How long does it take to set up a land and mortgage register?
It depends on the pace of work of the body supervising this process – the court. Usually the procedure lasts from a few to several months. It should also be noted that the installment amount is higher during this time. This also applies to borrowers who have opted for a fixed loan installment. The fee with the bridging policy is usually charged every month. In some cases, the premium is paid for the whole year. If the entry in the land and mortgage register occurs earlier, the bank will refund the overpayment.
Life insurance – effective protection
In many cases, banks add a life insurance policy to the mortgage. The protection includes the payment of compensation in the event of the borrower’s death. Buying insurance at a bank may be associated with some discounts – e.g. reduced margins or canceled commissions for e.g. five years. It is worth noting that the customer does not have to decide on the policy proposed by the bank, but to find insurance on their own.
The best collateral for a mortgage is “clean” protection policies. Complex insurance combined with investing may not pass the exam, because the amount of the benefit in this case may not cover the loan.
The key to choosing the optimal policy is a properly selected sum insured. The compensation paid should allow the liability to be repaid in full and provide the means to support the family of the deceased, e.g. for a period of three years.
Insurance against job loss
A person who is employed under an employment contract for an indefinite period can take out a mortgage. However, even this form of employment does not provide a 100% guarantee for maintaining a job. Therefore, a noteworthy option is the policy guaranteeing repayment of installments if the borrower loses the right to remuneration. What’s more, under the insurance you can get the right to defer repayment. You can also take out unemployment insurance for a cash loan.
Important – the insurer will pay the loan installments only for the time specified in the contract and not until you find a job.
Real estate insurance – a key grace period
Additional real estate insurance may be an interesting solution. Usually, the protection covers walls (structural elements) and permanent elements of home or apartment equipment (e.g. windows, sanitary fittings). This type of insurance in the basic version does not protect the so-called movable property (furniture, electronics and household appliances)
Real estate insurance should pay attention to grace. The term refers to the period during which the insurer has the right not to pay compensation. Usually, the temporary disclaimer ranges from a few months to a year.
Other types of mortgage insurance
There are many types of insurance on the market that can provide a mortgage security. However, it is worth noting that not all of them are real protection.
- sickness and permanent damage insurance,
- accident insurance,
- low own contribution insurance,
- real estate impairment insurance,
- investment insurance.
What elements to look for when choosing insurance?
The key thing is to know the GTC – i.e. the general insurance conditions. Reading the document is not pleasant, but its knowledge will avoid disappointment when the insurer does not want to pay compensation.
The sum of insurance, scope and exclusion of liability – these are the most important elements of the policy. Particular attention should be paid to disclaimer. There are situations when the insured dies and the insurance company does not pay any benefits by covering itself with an exclusion.
Important – if the borrower was ill before signing the insurance contract and died of this disease, he will not receive compensation.
You can insure your cash loan and non-bank loan. In such situations, it is worth buying a policy when the amount of the liability is relatively high. Insurance can be purchased directly from the lender or found on your own. For the described financial products, it is worth buying life and unemployment insurance.