Generally, the world of loan insurance is divided into two categories: there are group contracts that practice fixed monthly payments on one side, and insurers who often offer declining monthly payments on the other. But some lending institutions also adopt this principle on their own.
A fundamental difference
This is one of the major differences between lenders and insurers when it comes to home loan insurance. The former, in addition to the fact that they offer a group contract with standardized guarantees, calculate the amount of the monthly payments on the initial capital. In other words, the annual insurance premium is the same each year because the rate is applied to the total amount borrowed at the signing of the loan contract.
From the first to the last month when the mortgage is covered, the monthly payment is constant. This is not always the case with the insurance delegation, authorized since the Lite lender company of 2010 and successively reinforced by the Hamon law in 2014 and the Bourquin amendment in force since January 1, 2018, in order to promote mobility towards an insurer at any time during the first year of the contract and on each anniversary date beyond.
The issue of early repayment
Loan insurance by delegation, more personalized in terms of guarantees and more advantageous in terms of cost, often applies the principle of declining monthly payments. Their amount is indeed calculated on the capital remaining due, which decreases month after month logically. A mechanism which we are delighted with over the progress of repayments, by noticing that the debits decrease to become marginal in the last months of credit…
On condition of arriving there however. In the majority of cases and even with an average duration of 19 years, the borrowers settle their loan after ten years. Early redemption, resale, renegotiation: the reasons are multiple but the consequence is the same, because the insurance ceases and those who made the choice of degression did not have time to take advantage of it…
Better understand the degression
It is therefore important to discuss your project with a loan insurance broker to find the most suitable formula. You should also know that some banks offer degression. These establishments integrate insurance into the monthly repayment of the loan, by maximizing the portion devoted to coverage during the early stages at the expense of capital. Again, the wise advice of a broker helps to better understand these mechanisms and avoid unpleasant surprises at the time of early repayment!