Insurance Costs Associated With Purchasing a Mortgage

By Korollos Shalaby

Given all the turmoil in the past few years in the housing market, being able to enter a bank to negotiate a mortgage and leave with only the mortgage may seem like mission impossible. The fact of the matter is that many mortgages that are sold in our country are associated with certain insurance contracts that can be more expensive than the cost of the loan.

 It is worth knowing what type of insurance types the bank may require at the time of signing a mortgage and which of them are required by law.

I will briefly describe each of the insurance that may be associated with a mortgage loan:

 1. Damage Insurance

According to mortgage law, this is the only compulsory insurance the bank may require when a mortgage has fire insurance or liability insurance. In this case, the bank itself should compel an individual to purchase insurance of this type on the mortgaged property.

The client can buy this insurance and any other provided that, in the case of property insurance, there is a mortgage option clause where it appears as the beneficiary. In this case, the bank has granted that the loan shall be secured by the appraised value of the home.

 The insurance coverage for this damage is only on the property, that is, on the house, without having to include the contents of the same and the amount is calculated on the basis of the value contained in the appraisal. The requirement of this insurance is determined both by providing security to the owner of the house, as a financial institution to be this good guarantee of repayment.

 2. Multi-risk home insurance

It is advisable to distinguish between damage or fire insurance and the only home insurance and comprehensive insurance contracts which in any case is required by law. This home insurance, unlike liability insurance, covers not only the home but also the content of the home such as computers and jewelry.

It also has Liability coverage that covers repairs and compensation that the insured has to pay to third parties for damages they may cause. The Organization of Consumers and Users (OCU) recommends that you hire a home insurance with liability coverage of at least EUR 300,000.

The multi-risk home insurance also offers legal-defense if the insured has to claim damages others have caused on their property, and covers pets.

 3. Life Insurance

 As is the case with multi-risk home insurance, there is no legislative requirement that obliges the mortgage holder to a life insurance contract; however, many financial institutions require their employment at the time of signing the loan. This insurance covers the risk of death of the holder of the loan. That is, if the owner dies the insurer is responsible for paying off the principal outstanding.

Although insurance is recommended, it is important to assess their cost is very high and can share expensive mortgage very significantly. In addition, the life insurance premium increases with the advancing age of the insured.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.