Just as an owner seeks to securing the rents of its rental investment By ensuring that you are paid in all circumstances thanks to various solutions, the bank from which you are applying for a mortgage is very cautious and requires guarantees. The objective: that she continues to collect what you owe her, even if you yourself are no longer in a position to do so. In other words, someone (often a specialized organization) takes over if you encounter payment difficulties. Surety insurance is one of the possible solutions, along with the conventional mortgage and the special legal mortgage of the lender of funds. Its very different functioning can make surety insurance particularly interesting in many situations.
The two types of surety insurance
In case of’real estate purchase with bank loanit is possible to choose between two types of surety insurance, or suretyship:
- joint surety;
- the mortgage guarantee.
In the first case, anyone can stand surety for the borrower. It can be an organization, therefore a legal person, but also a natural person, who may or may not be related to the borrower. Only exceptions: persons with legal incapacity. In other words, people who are still minors or protected adults. It is then up to the lender (the bank) to ensure that the person standing surety is solvent.
In the second case, it is not a sum of money that is pledged, but a property. If the borrower fails to repay his rent, it is the property that is seized by the lender. The person acting as guarantor thus protects his assets, because only the property can be seized: the lender cannot supplement the sum that may be missing by taking money elsewhere.
In any case, finding a surety does not guarantee you the agreement for your mortgage. The borrower carries out his own checks and remains free to decide whether he consents to the loan or not. In addition, it should not be forgotten that after having paid for you if necessary, the surety insurance turns against you: you therefore remain liable in the event of default.
How to choose your bond insurance?
Since’in 2014, UFC-Que Choisir described the real estate bank surety market as “sclerotic”, surety organizations have multiplied, and it is now possible to compete to find the best surety insurance for your mortgage. Each organization is indeed free to set its prices and conditions: a study of the panorama of the bank guarantee is therefore essential when you need it to take out a mortgage. You will then have to be sure to compare:
- the rate of the guarantee (linked to the amount of the loan and not the purchase);
- the amount of repayment if the loan goes through without incident;
- subscription fees.
Banks generally have a surety center and direct you to it when you ask them for a mortgage, or to an organization of which it is a partner. This is the case, for example, of Caisse d’Epargne and Saccef, Banque Populaire and Socami, Crédit Agricole and Camca, or even Crédit Mutuel and CMH. However, nothing prevents you from choosing the organization that suits you. You can also call on your health insurance, especially if you are a civil servant.
Advantages and disadvantages of surety insurance
Surety insurance has the advantage of offering flexible and adjustable operation for each mortgage loan application. If its subscription is generally more expensive at the base than for a mortgage, it is generally less expensive as a whole. In addition, if you sell your property while you have not finished repaying your loan, you will not have to pay a discharge fee, i.e. no additional cost applies for allow you to prepay. Indeed, the release is linked to the mortgage and must be done before a notary, which explains the costs incurred. But surety insurance makes it possible to do without a notary.
In addition, the borrower recovers part of the amount paid when the loan matures. Indeed, the amount of the surety insurance is divided into two parts:
- the guarantee commission, which is kept by the insurance organization and allows its financing;
- a contribution to the common guarantee fund, a mutual fund in which the organization draws in the event of a defaulting borrower.
When the repayment of the loan goes well, the organization returns to the borrower part of the contribution to the common guarantee fund.
(By the editorial staff of the hREF agency)