Household Insurance on Mortgage

adeyb · 26 January 2018 at 10:51AM

Hi!
A bit of background. We took a out a fixed mortgage out 5 years ago (it's just finished). The market wasn't offering ANYTHING at the time for 5% apart from 2 miserable products (at least for us). The percentages as we are all aware back then were poor.

They gave us the an option to reduce the percentage rate slightly if we used their choosen insurance provider (which we did - in hindsight stupidly).

When the first year's schedule arrived I saw the insurance was included on the summary. It didn't sink in at the point. Then the second year's arrived and the insurance had shot up... Then it dawned on me... We were paying the robbing ******* interest on this!!

This carried on for a another 2 years when the stopped using the insurers and we had to (luckily) get our own (and a lot cheaper).

My query is this - Having spoken to friend in the finance game he said that front loading the mortgage in this way isn't right (it should have been separate) - Is this correct?

Please understand that I agreed to pay for insurance (for a tiny reduction) and (despite the rising cost) was duty bound due to my obligation (I'm not disputing this), but it smarts that not only was I pay their already inflated interest rate that they dumped it on the mortgage AND slammed me with compound interested as well.

As anyone had any experience with this?

Thank you.

dunstonh · 26 January 2018 at 12:44PM

They gave us the an option to reduce the percentage rate slightly if we used their choosen insurance provider (which we did - in hindsight stupidly).

Cross-subsidy deals used to be common. You don't see them much nowadays but they are still allowed.

hen it dawned on me... We were paying the robbing ******* interest on this!!

Some of them do. Some of them dont. It is usually paid from a sub account and your monthly payment covers it. There were some types that did add interest but not all. It should also be noted that many monthly standalone policies bought through comparison sites also charge interest but at a rate much higher than your mortgage.

My query is this - Having spoken to friend in the finance game he said that front loading the mortgage in this way isn't right (it should have been separate) - Is this correct?

Your friend is mistaken. Front loading of multiple years is considered bad. i.e. buying 5 years worth of cover and then front loading that. However, an annual policy is perfectly acceptable. Indeed, if you go back 30 years, this was how nearly everybody had their home insurance paid. Now it is rare because the market was opened up but it still exists.

but it smarts that not only was I pay their already inflated interest rate that they dumped it on the mortgage AND slammed me with compound interested as well.

Are you paying monthly still with your new home insurance? Have you compared the interest rate on that to the mortgage?

adeyb · 26 January 2018 at 12:57PM

Appreciate your reply.

As I said, in finance but not mortgages (hence me being here!)

We've changed mortgage companies this month, the rate dropped by almost two thirds, which goes to show how bad these sharks were (quelle surprises!)

It was an annual amount put on when the insurance was due - no monthly amounts.

As for monthly now? No, I never pay monthly - APR is shocking. I always pay yearly.

It was just an underhanded way of the building society doing it (never said that was how they'd do it - to be brutally honest, they whole experience with them was awful and unbelievably needlessly stressful - to cap it all I even have SOME ELSE'S mortgage pack they sent me in error!!)

Still, if it's how it's done sobeit. You live and learn!

Household Insurance on Mortgage

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