Mortgage insurance concept: results of discussion
Following the discussion with the professional community, the Bank of Russia has finalised its mortgage insurance concept.
This concept implies that a bank granting a mortgage loan shall insure the real estate purchased and the borrower’s life and health. Moreover, this insurance shall be mandatory, and its amount will be taken into account in the total loan value. At the moment, insurance is bought by borrowers, while banks often act as agents, keeping the largest portion of insurance premiums.
The new approach will enhance the transparency of mortgage transactions, make it easier for individuals to compare mortgage products offered by various banks, and furthermore, will help reduce mortgage cost.
According to the Bank of Russia’s estimates, if banks applied the approach described in the concept now, the total cost of a mortgage loan in 2019 could have been
The final version of the concept contains an updated minimum list of insured risks, and requires that an insurance contract in a mortgage loan securitisation transaction shall be concluded by a mortgage agent. The document also stipulates that the terms of the concept are not applicable to previously signed mortgage contracts, but shall still be applied in the case of mortgage refinancing.
The Bank of Russia has scheduled meetings with market participants to clarify the provisions of the concept.