What a bank can demand when hiring a loan
Many are the savers who, with hardly any knowledge of economics or the consequences of contracting mortgage loans or consumption, are forced to resort to their usual bank or to that other entity that someone known has spoken very well to be involved in the bizarre trance of becoming a new bank debtor.
Taking advantage of this weakness derived from financial ignorance
There are numerous entities that apply endless requirements to commercialize a consumer loan or a new mortgage: they force insurance, payroll, and receipts, make contributions to a pension plan, spend certain amounts with credit cards …
In recent months, some entities have come to demand the contracting of up to six different types of financial products to enjoy somewhat more advantageous mortgage conditions than the market average. But are these banking requirements lawful? No mortgage regulations or Bank of Spain regulations have been specified that contemplate such practices by banks and savings banks.
Therefore, before hiring a mortgage it is important to know how far the commitment with your entity can go. On many occasions, knowing the rights and obligations before embarking on the hiring of a loan can save many scares, unforeseen and, of course, a lot of money.
Insurance to tie for life
One of the most criticized practices against banks and savings banks is to force them to subscribe to certain types of insurance when contracting a mortgage. Keep in mind that no customer is required to subscribe to a certain life, home or loan repayment insurance if all you want is for the bank to advance the money that costs a flat.
Just a few weeks ago, the National Competition Commission opened a sanction file to 19 banks and savings banks suspected of violating free competition by conditioning the granting of mortgage loans to the contracting of life insurance. This practice has been considered irregular and illegal in several judgments of the National Court, also ratified by the Supreme Court.
The entities, however, shield their performance by arguing that if such insurance is contracted, the loan conditions will be better. And that is true. If the client decides not to contract the required insurance, the differential that is added to the Euribor, in mortgages at a variable rate, or the fixed interest applied will increase significantly. For example, in a mortgage of 100,000 dollars, going from paying an interest rate equal to Euribor plus 0.25 to paying Euribor plus 0.75 increases the payment by 500 dollars per year.
On the other hand, if the client decides to subscribe to the insurance that the bank or savings bank “recommends”, he must know that he is not obliged to do so with the entity that is imposed on him. Currently, the vast majority of Spanish banks and savings banks have bancassurance units with which they channel the commercialization of these mortgage-related policies. In this way, all the profits (for the interests of the mortgage and for the payment of the insurance premiums) remain in “house”.
But what many citizens do not know is that the client can contract the policies with the insurer he chooses, whether for price, service, trust or any other attraction that catches his attention. The Competition Law of 1989 warns that it is a prohibited practice to subordinate the granting of mortgage loans to the subscription of life insurance or credit repayment with an insurer belonging to the same business group.
In fact, in the deeds of the loan, the hiring of insurance may appear as one of the clauses, but the entity that will provide the service is not usually specified so that the client is free to choose it.
The consumer should know that
Therefore, when you subscribe your mortgage or consumer loan, you should not be persuaded by the bank employee when you try to persuade him that the hiring of insurance is mandatory.
The advisable thing is to let you know that we know the banking operation and that by signing an insurance, better conditions will be obtained, but that its hiring is not, by far. In the same way, the client must be able to choose with which entity they subscribe their insurance.
A very different case is that of payment protection insurance associated with a mortgage. In Spain, entities are required to subscribe insurance of this type when they grant mortgages for a value greater than 80% of the appraisal of the property. Specifically, in those cases in which mortgages are contracted for 100% of the value of the home, the entities are obliged to subscribe an insurance of this type that protects them against possible defaults.