Mortgage loan guarantee fees: what do they correspond to?
When a credit institution finances a real estate purchase, it is almost systematic: it asks the borrower to guarantee its mortgage. In some cases, this comes with costs … possibly excessive! To help you better understand the guarantee costs associated with mortgage loans and to get an idea of their cost, Younited Credit devotes a complete dossier to this subject.
What is a home loan guarantee?
The loan guarantee is a very simple mechanism. It consists, of the bank, in ensuring the repayment of the mortgage in the event of default by the borrower. To secure his mortgage, the borrower has four main options.
The mortgage consists of putting a property other than that financed as collateral. In the event of the non-payment of the mortgage, the bank is entitled to seize and sell the accommodation. The amount of the sale will then be used to repay the debt.
Registration in the privilege of money lender (PPD)
This mortgage guarantee works on the same principle as the mortgage, with the difference that it does not apply to already acquired housing, but to the housing finance.
The surety, also called guarantor, can be either a relative of the borrower (with or without family relationship) or a company specializing in surety. The guarantor undertakes to reimburse the bank if the borrower can no longer meet the repayment of his mortgage. The deposit is an alternative to the mortgage or the PPD.
Borrower insurance, or loan insurance
Loan insurance is a loan guarantee often offered by the lender at the same time as the mortgage offer. As with the guarantee, payment of the mortgage is guaranteed in the event of non-repayment by the borrower, but only in certain cases:
- Total and irreversible loss of autonomy;
In the event of loss of employment, reimbursement is only covered if the borrower has subscribed to this option.
Is borrower insurance sufficient as a loan guarantee?
Loan insurance can cover 100% of the amount of your mortgage, which means that if you are unable to pay your installments, the repayment of your credit will be taken care of in full.
However, as we have seen, insurance only covers certain risks. Thus, the bank often requires the borrower to provide additional collateral for risks not covered by insurance companies. You can very well attach several guarantees to your loan file.
Good to know: collateral, another possible guarantee
Do you hold a life insurance investment? Be aware that it can very well constitute a loan guarantee. In addition, if you have sufficient capital, you will not have to take out loan insurance. This will greatly reduce the overall cost of your mortgage.
Mortgage loan: what cost of guarantee depending on the option chosen?
For a mortgage, the cost of collateral can be very high. The bond will cost you nothing if you call on someone you know. On the other hand, if you go through a specialized organization, you will have to pay a guarantee commission (rate: 0.5 to 1% of the capital borrowed on average) and participate in the FMG or Mutual Guarantee Fund (on average, the rate is 0.75 to 4% of the borrowed capital). Mortgage fees, meanwhile, represent around 2% of the capital borrowed.
They include in particular the land publicity tax and the notary’s fees. Release fees at the rate of 0.8% compared to the amount of the loan may also apply in the event of resale of the property before the expiration of the mortgage.
The registration in the privilege of lender of money is subject to the same costs, with the exception of the land publicity tax. For the borrower, this loan guarantee is, therefore, less costly than the mortgage.
Finally, the loan insurance rate is at least 20% over the cost of credit, but it can go up to 40% or more.