Home insurance with your mortgage: 0.10% discount vs a 200-euro markup
A 0.10% discount on a mortgage saves 100 euros a year per 100,000 borrowed. If the bank's insurance costs 200 more, the tie-in loses money.
English · Original discussion in Spanish · Published
The bank's home insurance lowers your rate, but rarely pays off
A 0.10% discount on the rate of an average mortgage works out at roughly 100 euros a year per 100,000 euros of loan, according to a calculation doing the rounds in the debate. A home policy taken out independently with a mutual insurer runs to about 329 euros with a 10% discount applicable, according to a quote mentioned by one participant. The maths speaks for itself: the bank gives you a rate bonus and charges you for the favour in the premium. And yet almost nobody signs without swallowing hard.
The scenario is summed up by someone negotiating two fixed-rate offers at 2.20% nominal interest (TIN). At one lender, direct deposit of your salary cuts 0.30 points, life insurance another 0.10 and home insurance a further 0.10. At the other, salary 0.35, life 0.20 and home 0.15, with the obligation to keep the life and home policies for four years. The life insurance at the second costs 37 euros a month. The home insurance? Nobody knows: the bank won't reveal the premium until it values the property.
What the bank's home insurance really costs
The key isn't whether the policy is expensive in the abstract, but whether the rate discount outweighs the annual markup on the premium. The full calculation, line by line, is what decides. A 0.10% discount on the outstanding balance equals about 100 euros a year per 100,000 euros of mortgage; 0.15% equals about 150, according to the same calculation. If the bank's insurance costs 200 euros more than an equivalent policy on the market, the tie-in loses out by 50 or 100 euros a year. For 30 years.
The problem is that the information comes in dribs and drabs. The lender won't give you the home insurance premium until it values the property, and what it hands over beforehand is a sketch. Negotiating blind on a product whose price you don't know and which you're forced to keep for four years is the exact definition of asymmetry. The user who built an Excel spreadsheet to weigh up every scenario puts it bluntly: much of this is beyond you because there are so many numbers to crunch.
What policies do existing mortgage holders have?
The figures floating around range from 178 to 400 euros. The difference is no accident: square metres, property value, insured contents and coverage sums completely change the price. Comparing premiums without that data is comparing nothing. A 400-euro policy from a broker can cover triple the insured sum of a 178-euro one.
The experience with insurers doesn't inspire confidence either. Some recount being left without coverage on a rented flat. Others admit that every year, two months before renewal, they have to call to stop the price hike: the insurer goes through the motions, claims guarantees and taxes have gone up, and in the end shaves off five euros. Car policies trinc the same ritual of threatening to switch.
What the law requires and what the bank can demand
Damage insurance is mandatory for the property, but it doesn't have to be the bank's. The lender is required to accept a policy from another insurer with equivalent coverage. What you lose by not taking theirs is the rate discount, not the mortgage. The European Standardised Information Sheet (FEIN) must detail the rate with and without each tie-in at least ten days before signing, trinc by the transparency deed before a notary. That's the moment to demand the home insurance premium in writing before putting pen to paper.
Banks give nothing away. The question isn't whether the bank's insurance is a rip-off, but exactly how much the privilege of having it sold to you with your mortgage costs. With the numbers on the table, the answer is usually: quite a lot.
This analysis does not constitute financial advice. Every mortgage requires comparing the actual premium, the coverage and the length of the tie-in before deciding.
A 0.10% discount on the rate of an average mortgage works out at roughly 100 euros a year per 100,000 euros of loan, according to a calculation doing the rounds in the debate. A home policy taken out independently with a mutual insurer runs to about 329 euros with a 10% discount applicable, according to a quote mentioned by one participant. The maths speaks for itself: the bank gives you a rate bonus and charges you for the favour in the premium. And yet almost nobody signs without swallowing hard.
The scenario is summed up by someone negotiating two fixed-rate offers at 2.20% nominal interest (TIN). At one lender, direct deposit of your salary cuts 0.30 points, life insurance another 0.10 and home insurance a further 0.10. At the other, salary 0.35, life 0.20 and home 0.15, with the obligation to keep the life and home policies for four years. The life insurance at the second costs 37 euros a month. The home insurance? Nobody knows: the bank won't reveal the premium until it values the property.
What the bank's home insurance really costs
The key isn't whether the policy is expensive in the abstract, but whether the rate discount outweighs the annual markup on the premium. The full calculation, line by line, is what decides. A 0.10% discount on the outstanding balance equals about 100 euros a year per 100,000 euros of mortgage; 0.15% equals about 150, according to the same calculation. If the bank's insurance costs 200 euros more than an equivalent policy on the market, the tie-in loses out by 50 or 100 euros a year. For 30 years.
The problem is that the information comes in dribs and drabs. The lender won't give you the home insurance premium until it values the property, and what it hands over beforehand is a sketch. Negotiating blind on a product whose price you don't know and which you're forced to keep for four years is the exact definition of asymmetry. The user who built an Excel spreadsheet to weigh up every scenario puts it bluntly: much of this is beyond you because there are so many numbers to crunch.
What policies do existing mortgage holders have?
The figures floating around range from 178 to 400 euros. The difference is no accident: square metres, property value, insured contents and coverage sums completely change the price. Comparing premiums without that data is comparing nothing. A 400-euro policy from a broker can cover triple the insured sum of a 178-euro one.
The experience with insurers doesn't inspire confidence either. Some recount being left without coverage on a rented flat. Others admit that every year, two months before renewal, they have to call to stop the price hike: the insurer goes through the motions, claims guarantees and taxes have gone up, and in the end shaves off five euros. Car policies trinc the same ritual of threatening to switch.
What the law requires and what the bank can demand
Damage insurance is mandatory for the property, but it doesn't have to be the bank's. The lender is required to accept a policy from another insurer with equivalent coverage. What you lose by not taking theirs is the rate discount, not the mortgage. The European Standardised Information Sheet (FEIN) must detail the rate with and without each tie-in at least ten days before signing, trinc by the transparency deed before a notary. That's the moment to demand the home insurance premium in writing before putting pen to paper.
Banks give nothing away. The question isn't whether the bank's insurance is a rip-off, but exactly how much the privilege of having it sold to you with your mortgage costs. With the numbers on the table, the answer is usually: quite a lot.
This analysis does not constitute financial advice. Every mortgage requires comparing the actual premium, the coverage and the length of the tie-in before deciding.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (16 replies).
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