A special type of financial liability is a mortgage, in this case, additional fees may arise even more. They include, among others bridging insurance. This is often overlooked credit thread, which is of great importance. What is bridging insurance and who should it protect?
There is no need to buy insurance for a cash loan. However, this issue looks completely different when we reach for a mortgage.
What is bridge insurance for mortgage loans?
Few people have come across the concept of bridging insurance. It is borrowers who decide to take out a loan to buy real estate. Then, they often reach for a mortgage calculator. It is also worth knowing that bridging insurance has a real impact on the amount of credit that a borrower can apply for.
What exactly is it and what exactly is bridging insurance? Each bank that grants mortgage customers must be properly insured against insolvency. Such security is an entry in the land and mortgage register.
Before it is concluded, however, usually a few weeks pass, and the bank is obliged to withdraw cash immediately after signing the loan agreement. To avoid a situation in which it may turn out to be lossy, bridging loan insurance was introduced until an entry into the mortgage was obtained.
This is a kind of guarantee of compensation for any loss of rights to the mortgage that may occur if the consumer fails to repay the loan. Therefore, bridging mortgage insurance is to protect the bank’s interests.
Is bridging insurance compulsory?
A loan with insurance is almost a river topic. However, while loan insurance is in most cases non-compulsory, bridging insurance is governed by slightly different laws.
Bridging insurance is obligatory in the vast majority of cases, so it cannot be avoided. Securing against the borrower’s insolvency is a priority for the bank.
However, you do not have to worry about it because it is temporary insurance. What does this mean in practice? It applies until the entry in the land and mortgage register has been established.
When does the customer sign the bridging insurance?
The customer signs bridging insurance with the loan agreement. The bank secures the mortgage by increasing the interest rate. It is this additional cost that is added to the contract as bridge insurance.
When the entry to the mortgage appears, the interest rate is reduced by the rate of this insurance. If it happens that, despite making an entry to the mortgage, an additional fee will still be charged, the borrower may apply for a refund of overpaid bridge insurance.
How much is bridging insurance?
Bridging insurance takes the form of an increased margin. However, it is difficult to talk about its fixed amount, because each bank sets it individually. In most cases, it ranges from 1% to a maximum of 2%.
In some cases, banks replace the margin with a one-off payment, the amount of which is a designated percentage of the loan amount. Then it is this amount that is the collateral for the bank until it is registered in the mortgage.
How to calculate bridging insurance?
To calculate the amount of bridge insurance, it is worth using a special loan calculator. You can also do it yourself.
Let’s assume that the loan amount requested by the borrower is 250,000 USD. Its interest rate corresponds to the market average for loans in USD, i.e. 5.82%. Therefore, the installment of the loan taken for a period of 25 years amounts to USD 1,583.36. If the bank raises the margin by 1% for bridging insurance, then the installment increases to USD 1,738.35.
If the margin increased by 2%, the installment equals USD 1,899.83. The installment increased by bridge insurance is, therefore, higher by USD 155 and USD 316 respectively.
Assuming that the establishment of collateral will take three months, the cost of the loan would be higher by USD 465 for bridging insurance in the amount of 1% and by USD 948 if the insurance increases the interest rate by 2%.
When is the bridging insurance paid?
In the secondary market, the borrower pays the cost of bridging insurance from the moment the loan is disbursed. The situation is slightly different when the consumer decides to buy real estate from the primary market.
Then the insurance should be paid from the moment of paying out the first tranche of the loan.
When should I pay for bridging insurance?
The bank has the right to collect bridging insurance only until an entry in the land and mortgage register has been established . Until when is the bridging insurance paid? Up to the same time.
Collecting fees for bridging insurance after this day is against the law. Therefore, bridging insurance lasts from the payment of the loan until the date of entry of the property in the land and mortgage register.
Are there banks where bridging insurance is not required?
It may happen that the bank will not require bridge borrower insurance. In this situation, it is replaced by a one-time fee, which we have already mentioned above. However, this happens relatively rarely.
Does the bank return bridge insurance?
If the bank charged a fee related to bridging insurance after entering the property in the land and mortgage register, it is obliged to return it.
It should be borne in mind, however, that customer claims against banks for the return of bridge insurance expire after 10 years from the date of payment.
How to regain bridge insurance? The consumer must apply to the bank for a refund of the amounts due. If the bridging insurance is not returned, the case should be referred to court.