The annual percentage rate of charge, known as the APR, includes all the costs incurred by taking out a loan, in particular real estate. It allows you to compare several credit offers between them according to their total cost. However, according to Securimut, a specialist in creditor insurance, the APR is “an indicator that can lead to confusion. Here is why.
Insufficient to compare the cost of a mortgage
The APR, ex-global effective rate (TEG), was created to allow the borrower to choose his mortgage carefully by grouping under a single indicator all the costs related to obtaining this loan: amount of bank interest, administration fees, etc.
“As much as it allows perfectly to compare what strictly relates to” costs “, such as the interest, the expenses of files and expenses of guarantees [hypothèque ou cautionnement], as it does not make it possible to compare effectively the costs of insurance and even less the guarantees ”, underlines Securimut, indicating that at equal APR, one financing can be less interesting than another.
Indeed, loan insurance, which makes it possible to secure the repayment of the mortgage to the bank (in the event of death, disability or incapacity of the borrower), is freely chosen by the borrower at the time of the subscription of his credit or thereafter. “The comparison of its cost cannot therefore be reduced to the analysis of its total cost over the term of the loan since it can change” notes Securimut.
In addition, identical total costs can hide a very different distribution of contributions over time: one borrower insurance can cost more than another at the start of the loan and be less expensive thereafter. “Without even changing insurance, mortgage loans last on average only 8 years, for an initial subscription of around 20 years. The actual cost of credit and loan insurance will be that of the actual loan retention period, ”he says. You must therefore find out about the cost of your insurance according to the probable duration of your credit, to choose the most suitable loan.
Sometimes “distorted” APRs
A more or less important part of the cost of borrower insurance is sometimes “output” of the APR mentioned in the loan offer, Securimut advances. Thus, banks make compulsory part of the borrower’s insurance and include it in the APR, and make optional another part that is not included in the calculation of the APR. This can thus prove to be attractive from one bank to another, but the optional part will nevertheless have to be paid when the loan is taken out … Without the borrower being fully informed of his right to refuse this optional part, according to the loan insurance specialist.
“In recent years, these practices have become very widespread and now concern almost all lenders. Moreover, while in the past never more than half of insurance was placed outside the APR, the share of borrower insurance excluded from the APR can now reach 75% in loan proposals from some lenders! He says.
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