With mortgage rates at such low levels, one might think that the cost of financing the acquisition of a property is reduced proportionally… But that’s without counting on borrower insurance, whose weight has increased. Explanations.
The cost of credit halved
Low rates, a boon to take out a mortgage and finance a home ownership or rental investment without having a fantastic contribution! With an average rate of 1.17% according to the Credit Logement / CSA observatory against 2.25% at the end of 2015 for example, the cost of financing has collapsed: it has been halved! But we are talking here about the cost “excluding insurance”. Because when you reinstate mortgage loan insurance, there is no longer any question of an amount divided in half…
A tax that increases the bill
If rates fall in 2019, loan insurance increased on January 1, due to the removal of the special tax exemption on insurance conventions (TSCA) applied to the death guarantee. This 9% tax is no longer only reserved for incapacity, invalidity and job loss guarantees. And by extending to the death guarantee, it now covers 100% of monthly payments, covers half before. Logically, this translates into an increase in the cost of borrower insurance of around 4.5%.
A variable additional cost depending on the profiles
According to Capital magazine, the additional cost is however less than one dollar per month for a loan of $ 200,000 over 20 years whose monthly insurance payments do not exceed $ 15. Over the total repayment period, this represents less than $ 160 more, to be added to $ 3,500 in premiums. Using the same example, the additional cost is however proportionally higher for profiles exercising a risky job ($ 290 to be added to the $ 6,425 in premiums) or suffering from a pathology ($ 1,115 in addition to the $ 24,800 premiums).
Insurance delegation lowers premium costs
One way to reduce the weight of loan insurance is to opt for the delegation of mortgage loan insurance. The margin of insurers is indeed less than that of lending institutions which offer a group contract, but it is their tailor-made guarantees which allow the amount of premiums to melt. According to UFC-Que Choisir, a 35-year-old borrower without health problems who borrowed $ 200,000 over 20 years can save $ 4,000 by preferring the delegation of insurance to a group contract!