Life Insurance for mortgage applications

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This topic contains 14 replies, has 6 voices, and was last updated by Profile photo of Anonymous Anonymous 2 years, 7 months ago.

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  • #57461
    Profile photo of Anonymous
    Anonymous
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    Is it generally the rule that a Spanish mortgage is only given if the applicant takes out life insurance? I have no need for any life insurance and it seems a waste of money, but it also seems that it is a prerequisite for the bank to give me a mortgage. Is this normal?

    D

  • #81794
    Profile photo of Anonymous
    Anonymous
    Participant

    When I worked in Spain they most of the time forced you to use a home insurance from the bank, how legal it was I dont know. An extra revenue stream at least. I guess they need more revenue streams now? It could probably be a factor when they refinance also. Mark can probably give you a good answer on this.

  • #81781
    Profile photo of Anonymous
    Anonymous
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    @Ardun wrote:

    When I worked in Spain they most of the time forced you to use a home insurance from the bank, how legal it was I dont know. An extra revenue stream at least. I guess they need more revenue streams now? It could probably be a factor when they refinance also. Mark can probably give you a good answer on this.

    I had a feeling that it wasn’t legal, but that in practice you just wouldn’t get a mortgage without it.

    D

  • #81778
    Profile photo of Anonymous
    Anonymous
    Participant

    There is a bigger picture here. In France you will not get a mortgage without a life Insurance it is not the policy of the Bank but it is the law. Income stream for the Banks aside.

    When the borrower dies the mortgage is paid out from the Insurance proceeds & the property becomes debt free, as such the total value of the estate becomes liable for Inheritance tax. If the property was not Insured only the equity would be subject to Inheritance tax.

    Where, the borrowing is say 50% loan to value, the property is not the main residence &/or the borrower is single. There is no need for the Insurance as a choice. If the borrower dies there will not be an issue as there would be enough equity in the property for the Bank to recover its balance. The Bank will not be throwing the wife/husband/children in the street as the borrower was single & the property was not his/her main residence .

    The reason that I am comparing France here is that in my experience Spain tend to follow or use French Taxation as a blue print for their taxation. ( personally not a good policy, France being a more diverse & bigger economy can absorb the layers of social/beuracratic layers of cost in the economic cycle/activity )

    However what is legal & what is illegal in Spain is anybody’s guess & what aspect of the law is enforceable and can be upheld in Spain is an area that has been covered on various thread & forum users have already formed a view on it.

    I can see the requirement/need for the lenders to insist on the property being insured as the Lender has interest in the property & that needs to be protected. In my experience the lenders have not insisted that I use their mortgage services.

    In my case I have however opted for this (property Insurance) this way the burden of responsibility is then shifted onto the lender in the event that I have forgotten to insure, my Bank had not paid out the premium etc.

    The concept of Insurance in Spain is not wide spread/taken seriously. The mentality of ” que sera ” takes over hence the lender do not wish themselves to be exposed in relying on the borrower that their interest is protected.

  • #81771
    Profile photo of Anonymous
    Anonymous
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    Ah, that explains a lot. I was intending to take buildings insurance, and I understand that a bank would want that, but life insurance for me is not necessary. It’s just unfortunate that banks often have very little flexibility when it comes to special cases.

    D

  • #81769
    Profile photo of Anonymous
    Anonymous
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    @Daryl: If you wish to take a life Insurance or not is a personal view. I normally measure pro & cons in my set of circumstances & do not fall for the fear element of ” What if ” !!!

    If I was you & you do not wish to take a life insurance you should stand your ground & argue it out as the Bank commission will be a smaller amount than the premium you have to be paying for life insurance. Try and see instead if you can obtain banks other product e.g contents and or car Insurance which you do not have to renew once the blackmail position is over.

    I suppose if the LVT is higher the Bank may insist on this one and it pain’s me to say that in this instance I can see where they are coming from.

  • #81691
    Profile photo of GarySFBCN
    GarySFBCN
    Participant

    While I’m sure that it is a total scam, it was a condition of getting a mortgage that we have life insurance. The bank would not lend without it.

    Also, they offered to broker insurance and knocked a small percentage off the mortgage if we did it through them.

    I think we are paying 660 euro a year for the insurance. 20 year mortgage for 197,000.

  • #81683
    Profile photo of Anonymous
    Anonymous
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    @shakeel – I have been told that I will not get a mortgage without life insurance and that all the banks insist on it.

    @garysfbcn – I was quoted around 400 Euro for my insurance. I know it’s not a lot of money, but there is a limit as to how much I want to pay each month, and so far a UK mortgage is already nearly £150 per month cheaper. 😯

    D

  • #81675
    Profile photo of Anonymous
    Anonymous
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    OK. The question arises that if you have a life Insurance in England or your home Country you cannot insure your life twice. As to the best of my knowledge this is illegal.

  • #81676
    Profile photo of Chopera
    Chopera
    Participant

    I believe it is illegal for banks to force people to take out life insurance with them (I think the EU had a go at them over this matter a few years ago). So instead they just offer 2 interest rates: the “low” interest rate if you take out their life insurance and the ridiculously high interest rate if you don’t. The life insurance that comes with a Spanish mortgage covers the oustanding mortgage upon death. It doesn’t cover anything else as far as I know. So you can have this policy side by side with another policy.

  • #81672
    Profile photo of GarySFBCN
    GarySFBCN
    Participant

    @chopera wrote:

    I believe it is illegal for banks to force people to take out life insurance with them (I think the EU had a go at them over this matter a few years ago). So instead they just offer 2 interest rates: the “low” interest rate if you take out their life insurance and the ridiculously high interest rate if you don’t. The life insurance that comes with a Spanish mortgage covers the oustanding mortgage upon death. It doesn’t cover anything else as far as I know. So you can have this policy side by side with another policy.

    That’s what I’ve been told. What’s really crooked is that discount is meaningless to us because, while our mortgage rate is something like euribor + 1.25%, it also has a floor of 4.25%.

    So I have two plans – one is to attempt to renegotiate the terms of the mortgage after 1 year has passed (in August/September) and the other is to move to a cheaper insurance policy.

    I still plan on paying everything off in about 9.5 years and that makes me a bit lazy about these things.

  • #81656
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    Anonymous
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    “So I have two plans – one is to attempt to renegotiate the terms of the mortgage after 1 year.

    ATTEMPT is the operative word. Everything in life can only be negotiated either from a position of strength or an even playing field. Why do you think the Bank will ever entertain the idea of negotiation ? Even if they agree the terms have to be notarised, who is going to pay for this cost & the taxes on it? Do you think one year from now bank will be flushed with liquidity & will be handing out credited to all & sundry.?

    ” (in August/September) and the other is to move to a cheaper insurance policy.”
    You will not be allowed to do so as the conditions of the mortgage will stipulate this & even if this is not the case. The Bank will start charging you some kind of fee e.g admin fee for breach of mortgage conditions. In addition the Bank will be in a position to demand the payment of the mortgage.

  • #116809
    Profile photo of GarySFBCN
    GarySFBCN
    Participant

    @shakeel wrote:

    ATTEMPT is the operative word. Everything in life can only be negotiated either from a position of strength or an even playing field. Why do you think the Bank will ever entertain the idea of negotiation ?

    I actually have some leverage. Assuming I have the time to work on this in September, I’ll post my results in the mortgage forum.

  • #116817
    Profile photo of Anonymous
    Anonymous
    Participant

    Glad you have leverage. I await with trepidation.

  • #119396
    Profile photo of Anonymous
    Anonymous
    Participant

    It is not a rule that one need to have an insurance to get an mortgage approval, but for the bank it’s like a security for the mortgage. In case, if you cannot payback the mortgage, for some reason, they will compensate that loss with the amount from insurance. Most banks thus makes it a necessity to take a insurance in order to have a mortgage application approved. This is where the financial solution services stands-out and takes the advantage.

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