When applying for a mortgage, the bank most often tells the client that they will have to take out damage insurance to obtain approval. But is it really mandatory to take out this insurance along with the mortgage loan? According to the financial comparator HelpMyCash.com, although it is true that the law allows entities to require the contracting of these products under certain circumstances, there are several nuances that should be kept in mind to avoid falling into banking commercial tricks.
Law 5/2019 regulating real estate credit contracts establishes that a bank can only force the client to contract three products along with the mortgage: an account to pay the installments, damage insurance on the mortgaged property (with coverage minimum for claims) and other insurance “to guarantee compliance with the obligations of the contract”, which could be life insurance or payment protection.
Now, this regulation adds two very important nuances. The first is that these insurances can be contracted with any insurance company, not just the bank's. And the second is that the mortgage cannot become more expensive by signing these mandatory policies with another company. In addition, entities have the obligation to study all alternative policies presented by the client, provided that their coverage is equivalent to those required.
In practice, however, banks often do otherwise. According to HelpMyCash.com, the most common thing is that entities offer to reduce the interest if the client takes out one or more of their insurance policies: multi-risk home insurance (with more coverage than damage), life, payment protection... The only one that they usually establish as mandatory is the damage one, which would only have to be signed if the home multi-risk one was not signed.
Therefore, in most cases, the client can decide between taking out the mandatory damage insurance on their own or subscribing to the policies proposed by their bank to reduce the interest on the mortgage. Likewise, in many cases other requirements can also be met to further reduce the applied rate, such as direct debiting the payroll, making minimum periodic purchases with a card, etc.
A good example of this is BBVA. Your Fixed Mortgage has an interest rate of 2.90% for 30 years if the client direct deposits his or her payroll or pension and takes out the home and amortization insurance proposed by the entity. If none of these requirements are met, the applied rate rises to 3.90% for 30 years and damage insurance must be taken out with any company.
Before hiring insurance and other bank products to reduce the interest on a mortgage, HelpMyCash.com remember that these services cost money. Consequently, it is advisable to crunch the numbers to ensure that they will be worth subscribing to.
Likewise, the analysts of this comparator recommend comparing this mortgage with insurance included with other offers on the market. And although it is not very common, there are entities like Pibank or MyInvestor that do not require contracting other products to get a lower interest rate. In general, their rates are somewhat higher than average, but their mortgage loans may cost more due to their lack of bonding.
