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Figuring out loan requirements for your real estate investment?
As you learn how to apply for a loan, you’ll find out that lenders actually require an additional expense on top of your housing loan: insurance. Bank lenders often mandate that you take out certain policies before accepting your application, which might surprise and confuse you as you go through this application process.
Avoid confusion and understand all the fees you need to pay while investing in real estate with the help of this guide. Check out this Condo Arena guide to discover the purpose, cost, and importance of Mortgage Redemption Insurance (MRI) and fire insurance for your condo purchase requirements.
Understanding Condo Loan Requirements
Housing loans come with required insurance policies because banks use them to protect themselves and you, the borrower, in unprecedented circumstances. Here are some key insights into these requirements for interested real estate investors.
Mortgage Redemption and Fire Insurance
If you’re not yet familiar with these financial safeguards, here’s a brief breakdown of both MRI and Fire Insurance to help you understand their significance to your condo purchase requirements today:
- Mortgage Redemption Insurance (MRI) – This policy is a type of life provision designed to protect the bank lender and the borrower, in the event of your sudden death or total and permanent disability throughout your mortgage payment term. It’s meant to secure you and your loved ones’ finances by rescinding your outstanding mortgage obligations in case of your death or disability, releasing dependents like your spouse or heirs from foreclosures or financial liability.
- Fire Insurance – While more straightforward than an MRI policy, this specialized form of property protection is equally important as it covers your property in case of unexpected fire-related disasters. Fire insurance is a contract of indemnity that provides you financial support if your property is damaged or destroyed due to fire amid the duration of your mortgage payment term.
Bank lenders require these policies of borrowers because they minimize exposure to financial risk. It’s a super common practice for banks to require both types of safeguards when granting housing loans, making it important knowledge for investors like you who are seriously looking for condo options on our Property List.
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How MRI and Fire Insurance Affect Your Condo Loan Costs
Of course, these safeguarding policies are still costs you need to calculate for throughout your real estate budgeting process. Here are a few ways you can account for the financial impact of these crucial condo purchase requirements before investing in the long run.
MRI premium computation
These are the major factors that go into figuring out what your MRI is and what the policy’s premiums will cost throughout your mortgage payment period:
- Loan amount and term - Firstly, your annual premium will be partly based on the total amount you’re taking out, and the length of time you’re going to take to pay off said amount. For example, your bank may require you to get coverage equal to the amount you're borrowing, like a ₱1 million coverage amount for a ₱1 million loan. The premium amount will also decrease annually, as you also continue to pay off your mortgage and reduce what you owe.
- Age-based premiums - Depending on the lender, the cost of your MRI premium may also be calculated based on your age. This is so that the bank can estimate how many years it will take for you to pay out your outstanding balance as a borrower. For example, your annual premium may be lower if you’re in your early twenties and spending more years paying off what you borrowed, versus someone who might be in their sixties with fewer years to pay off their mortgage.
- Major banks and lenders - As for where you can go to get this policy, either your bank lender will already have in-house options or they’ll have recommended third-party companies in mind to help you calculate your premium. For example, there are in-house MRI options via Pag-IBIG if you happen to borrow housing funds from this government fund. Major banks like BDO, BPI, PNB, and Security Bank also have in-house options, and if you want to find a separate but accredited third-party company you can go to groups like BenLife, SunLife, and Country Bankers Life Corporation for a separate policy.
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Key cost factors for fire insurance
There are slight differences to fire coverage required for a housing loan versus a standard fire insurance policy. The latter usually covers the cost of repairing or rebuilding homes damaged by fire. For the former, the coverage will go to paying out your property’s outstanding mortgage balance instead. This means that you won’t have to worry about finishing off your payments while dealing with fire damage to your home.
Here are some more key factors to this required policy for your housing loan:
- Annual premiums - It’s common practice for your required fire coverage to be bundled with your MRI, making it an annual premium that gets paid off at the same time as your other policies. Depending on your insurer, you may also get inclusions like acts of nature coverage for damage incurred from other disasters.
- Premiums based on appraised value - Unlike an MRI, however, the premium for this policy is based on the appraised value of your property, and not the value of your loan amount. So as you go through the Real Estate Comparison process, you can get an idea of your final premium amount by looking at the appraised value of your property investment.
- In-house bank policy vs. third-party providers - It’s common practice for bank lenders to bundle your mortgage alongside their in-house MRI and fire coverage premiums, with the total amount being payable monthly or annually based on your agreed upon terms. Third-party providers may not automatically bundle these two required policies together though, which might make things cheaper but less convenient for you as the insured.
There are also other safeguards you can take out for your loan amount, like household contents coverage and additional accident riders, but these are all supplementary to the required policies that your lender will make you get as well. So remember to consult with a property lawyer, experienced agent, or a financial adviser first to ensure you’re getting the best rates for your needs while investing in real estate.
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More tips for investing in real estate
Remember to keep these final tips and reminders in mind as you choose a condo in Manila for your buying needs:
- Do your research before making any financial commitments. Get to know your loan requirements ahead of time so that you can secure the funds needed to fully pay for your real estate investment.
- Work with experts who can answer all your questions. Always consult a property lawyer, experienced agent, or an expert financial adviser to fully understand the fees and commitments you’re responsible for during a real estate transaction.
- Compare your policy options. If you’re worried about the annual costs of your in-house premiums, work with your broker to find other third-party options for more affordable policies.
Want more in-depth financial insight into your condo purchase requirements while investing in real estate? Then check out Condo Arena to discover your options and utilize our comprehensive comparison tools for your next purchase.
