Home Loan Insurance: What Budget Should You Plan For?
The cost of home loan insurance is an essential element, which must be factored into the total loan amount. Whether the contract is taken out with a bank, or whether the borrower chooses another establishment, the price of the insurance must make it possible to adjust its budget accordingly. Several factors come into play… Focus on the calculation of borrower insurance.
How do you calculate the cost of your borrower insurance?
Legally considered as not compulsory, remember that the subscription of a mortgage loan insurance can nevertheless be required by your financial organization. It is indeed a real protection both for the borrower, but also for the lending institution. It will cover the remaining contributions in the event of incapacity for reimbursement, invalidity of work or death.
More generally, you should know that borrower insurance represents a significant cost in the total amount of the loan. Variable from one contract to another, it will first depend essentially on several factors specific to the subscriber:
- Health status
- Medical history
- Risks related to professional activity
- The term of the loan
Then, it will also be necessary to take into account the way in which the insurance rate is applied.
Here is a comparative table of the prices of a mortgage loan insurance, carried out by Hyperassur. It makes it possible to highlight the price difference between the subscription of a contract in a banking establishment, and the subscription in delegation of insurance, this for a very precise profile.
Two Ways To Calculate The Cost Of Your Home Loan Insurance
Since 2010, the Lagarde law allows borrowers to choose their contract themselves, in particular through the insurance delegation. This is why, the cost of home loan insurance can now be calculated in two ways …
Calculation based on the amount of capital borrowed
Generally, your bank will offer you an insurance cost based on the amount of capital borrowed. In this case, the monthly contributions remain unchanged for the duration of the loan.
To find out the monthly cost of your loan insurance, multiply the loan insurance rate (defined by your bank) by the capital borrowed, then divide the result obtained by 12 months. For example, with a borrowed capital of $ 200,000 covered by an insurance rate of 0.35%: (200,000 x 0.35%) / 12 = monthly contributions of $ 58.33.
Calculation based on outstanding capital
The cost of loan insurance can also be calculated based on the outstanding principal. In this case, the amount of the contributions is recalculated every month, in proportion to the capital which remains to be reimbursed.
To find out the monthly cost of your borrower insurance, multiply the insurance rate by the capital remaining due, then divide the result obtained by 12 months. For example, with a borrowed capital of $ 200,000 covered by an insurance rate of 0.35%: (200,000 x 0.35%) / 12 = the first contribution will be $ 58.33. On the other hand, the second contribution will be $ 58.10 since the borrower having already reimbursed $ 800 last month, the remaining capital due is $ 199,200.
In summary, the monthly cost of borrower insurance decreases from month to month, as the loan is repaid.