Have you been offered a home insurance policy by your mortgage lender? If so, don't accept it just yet!

Many years ago before banks and building societies were indistinguishable from each other, building societies were the only source of home loans and they were able to dictate terms. It was usually conditional before a mortgage was granted that the lender agreed to insure the house through the company recommended by the lender, and the cost of this policy was added to the mortgage repayments every year. The problem with this approach was that not only did the borrower have to pay for an expensive policy, not only did the lender stick a whopping great commission charge on top of it, but the lender had to pay an interest charge on not only the policy but the building societies commission, too!

With the growth of greater choice in lending it was eventually made illegal for lenders to enforce this practice any longer. However most lenders still recommend an insurer to people taking out a mortgage with them, and the majority of people accept this insurer without question, assuming that they really have no choice. In fact they have an enormous range of choices! The building society, bank or other lender is perfectly entitled to ensure that the house is properly insured since it represents the security that they hold against the loan they have made on the property. You are however entitled to buy this insurance from any reputable insurance company you wish, and there is a huge choice of them on the Internet, the majority of which will offer you a far lower price than the one that your lender has recommended, and by paying for it up front you won't have to pay any interest on it either! Good hunting.

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