The new Mortgage Law was born with the main objective of protecting the consumer.
It does so in such important aspects as the duty of prior information and the obligation to consult up to ten days in advance of all documentation before the notary. It also seeks the formation of more transparent prices , especially in the case of delay costs, which do not punish the citizen.
For all these reasons, it has also legislated on a controversial and abusive aspect: the obligation to contract products to grant a mortgage. The change and clear differentiation between the mandatory linkage, which is eliminated, and the regulation of the optional contracting of products to improve the conditions of the mortgage has become an essential point of the new Mortgage Law as explained below.
Willingness of contracting for the benefit of the consumer
Compulsory contracting of insurance (life, home, payment protection, …), bank accounts, cards and even pension plans had become a very common practice in many financial institutions. The main problem is that as a mandatory condition this linkage made it difficult to remove these products , which in many cases meant a cost overrun for the consumer. They even secured payment on products such as life insurance by paying their entirety as a single premium at the time of contracting the mortgage (sometimes this disbursement was even financed through the loan).
With the entry into force of the new Mortgage Law, these practices are prohibited. The client is free to choose with whom and how to contract these products and look for the offer that, by price and conditions, is the most beneficial.
How product contracting is regulated now
This does not mean that the lender is prohibited from offering insurance that leads to an improvement in the price (interest and / or commissions) of the mortgage, but it does radically change the scenario so that this voluntariness is clear.
Now the product is not linked (mandatory), it is combined . For all these reasons, its benefits and risks must be clearly reported and simulated scenarios provided where appropriate. The cost of each product or service is also broken down and at least two offers are separated. A first, with the conditions of the mortgage without the hiring of these products and at least another with the costs and conditions if these optional products are contracted.
Insurance and the new Mortgage Law
Because it is the most important product in this cross-contracting, insurance deserves special mention. Thus, the new Law details that if it is decided to contract with the bank, a series of conditions must be met:
- Have an annual maturity (eliminating the single premium formula).
- That the policyholder has the freedom to renew them or change the insurance company.
With all this, the new legislation makes it clear that the cancellation cannot adversely affect the conditions of the mortgage. Even in mandatory insurance, such as property damage , you can present insurance with any entity provided it has the same conditions and benefits.
With all this, the client gains in transparency and freedom of choice, a flexibility that can lead to improved conditions and achieve savings.