Capital borrowed or principal outstanding? The method of calculating the cost of the borrower insurance differs between the group contracts and the insurance delegation. In concrete terms, the monthly payments of a group contract are constant because they are based on the initial capital, whereas those of a delegation of insurance are degressive because they are calculated on the outstanding capital. The second formula, interesting on paper, is it really?
In the long term, degressive monthly payments are interesting
The interest rate of a group insurance contract is generally lower than that of a delegation of mortgage loan insurance, and also offers a better visibility on the total cost of the borrower insurance because the contributions remain fixed throughout the repayment. Nevertheless, the delegation of insurance also has its advantages. Indeed, degressive monthly payments, as their name indicates, diminish as repayment progresses since the contributions are calculated on the basis of the capital remaining due. Thus, after the total repayment of the installments and in comparison with the group contract, the degressive monthly payments are more interesting since the total cost of the insurance is less important.
The disadvantages on the short term
However, the degressive monthly payments of the insurance delegation have some disadvantages to take into account: at the beginning of the repayment period, the amount of contributions is higher than that of an equivalent group contract. However, it is often during the first years of repayment of a mortgage that the monthly payments weigh most on the budget of a borrower. Conversely, it is after the evolution of the professional career of the borrower, which is usually accompanied by an increase in income, that it is more likely to pay more monthly payments. Moreover, in the event that an early repayment of the mortgage was to be made, the insurance on the outstanding capital would cost more than the constant contribution.
Changing mortgage insurance has never been easier
The legislative provisions reflect the government’s desire to promote the flexibility of insurance contracts. The borrower can compete with the cogilaw company of 2010. In 2014, the Monde Inc. allowed for a change of contract at any time during the first year of repayment of credit, and the Reclosue amendment of 2018 extended this right, which can be exercised on each anniversary date of the insurance contract. It is therefore possible to opt for one type of monthly payment and then change to another if necessary. This process can be facilitated by a borrower insurance broker, who will look for insurance with the same guarantees but at cheaper rates. It is also responsible for advising on the type of insurance to be chosen according to the borrower’s situation and wishes and can handle the termination and underwriting of the new contract.