Loan insurance: when it explodes the rate of wear.

Low mortgage rates, a blessing for all borrowers? “No” will answer the elderly and those working in a risky profession! At issue: the calculation of the usury rate, which collapsed due to the fall in mortgage rates, but mechanically excludes the profiles least favored by loan insurance. Explanations.

The perverse effect of low mortgage rates

Mortgage credit has never been so cheap, with an average rate at 1.20% according to the Housing Credit Observatory / CSA. Let us rejoice! Because these low rates open up access to property to a larger number of households, and make it possible to drastically reduce the cost of financing a property. However, there are also losers in history: profiles deemed to be at risk by insurers. They suffer from a butterfly effect, that of the fall in the usury rate, because the additional premium that applies to their mortgage loan insurance makes them exceed the ceiling of this threshold above which the banks no longer lend.

The wear rate, an indicator included in the OJ

The wear rate is the maximum level that lending institutions are allowed to reach in the context of a loan. Its existence since 2011 aims to protect borrowers from abusive practices. It is the Ministry of the Economy in person that sets this rate of wear, based on a survey conducted by the Cream bank. In concrete terms, it is 33% higher than the average of the rates charged, including borrower insurance. Currently, the usury rate is thus 2.79% for a mortgage loan of less than 20 years, 2.97% beyond. It could still go back to the next publication in the Official Journal on October 1. And this does not delight seniors, smokers, firefighters or plane pilots.

Towards a reform of the wear rate?

What do these categories of borrowers have in common? An additional premium on their loan insurance due to their “at risk” profile . The risk of illness or accidental death being higher, they pay a high price for their home loan insurance with a higher rate, which leads to an excess of the wear rate and has the consequence of blocking the loan request. This mechanical effect has been identified by the credit players, who are trying to find alternative solutions as explained in the newspaper Les Echos (pledge of savings products, financial arrangements with several credits) pending a possible reform. The most plausible route leads to an APR excluding insurance cost to establish the wear rate, in order to avoid this crowding out effect.