I am a bit confused, with the rates offered by the bank and insurance company for the same mortgage.

After speaking to all the big players in bank the lowest I can negotiate was 1.6% for 10 years fixed term.
But the insurance company starts at 1.4% for 10 years...I have not negotiated yet..Am I missing something, is there any catch in insurances with mortgages...

A

It probably does not make that much difference. It is likely that your Mortgage will be split into 2 parts, one at 60% of the property valuation and one at 20%, the latter which you are expected to pay off within say 20 years. So you have to look at the whole finance package and not just the headline interest rate of the main mortgage.

The insurance company may bundle insurance products, say with indirect amortisation of the second mortgage, and may make it expensive to cancel if you decide to sell up. But also with a bank, you have to look at what happens if you have to terminate the whole thing early.

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Thanks....lets see what happens next..will know more details tomorrow..

Akki

Banks and insurance companies often take opposite roles in the same trade. Consider the following scenario:

i) Insurance has cash, looks for a way to invest, lends it to a bank
ii) bank takes the deposit from the insurance company, and lends it to XYZ, of course at a higher rate to finance its business

Instead, the insurance company could lend the money directly to XYZ. The two could split the banks margin between them, and both would end up ahead.

That's basically the situation when you get the mortgage directly from the bank - even though the insurance company demands a lower rate than the bank they still may get more than by other channels.

Hi A

1.6 for 10 year is good!! Well done, I settled at 1.8 a few months back...

To obtain a loan from an insurance company you need to tick all the correct boxes and they are more competiive on the long term loans (10 years) than banks for fixed rate loans. These are pension monies (yours and mine) so they have to be invested very cautiously and under tighter rules than the banks (remember the subprime scenario?)

The banks can take a bit more risk (they have not quite learned the lesson) and will also loan to those not quite 100% suited...

But think you 1.6% rate so far is really splendid!

Agreed
Just looked at the fixed rates the banks are advertising for mortgages and they have moved down around 0.05% over the last week