Medical Illness and Mortgage Finance in France
Thursday 07 March 2019
A procedure exists in France to enable those with a serious medical problem to obtain a mortgage.
If you happen to be elderly and/or with a serious medical illness the position is even more complicated, as there are fewer lenders willing to offer a loan. Even if you are able to obtain one the terms will be less generous.
The position is made even more difficult in France by the obligatory nature of a mortgage life insurance policy, which must be taken out on all home loans. This requirement also sometimes applies to unsecured personal loans.
Such policies cover reimbursement of your debt in the event of death or disability, and so provide an appropriate level of security for the bank.
The policies are distinct from mortgage protection payment insurance policies, designed to deal with your repayments in the event of loss of employment or accident.
Loan Application Process
Before proposing an insurance home loan your broker, bank, or insurer will ask you to fill out a detailed medical questionnaire.
Depending on the illness or disability you have or you had, the insurer may declare that you may are not eligible to obtain insurance cover under the normal conditions of an insurance contract.
In this case, you might be offered insurance cover with a premium related to your health, or include disclaimers that exclude cover for the risk you present.
Do not, however, assume that simply because you have, for instance, high-blood pressure or a weak heart that is a reason for refusal of your application. If that were the case few households would ever be offered a mortgage.
Nevertheless, to facilitate access to credit insurance for people considered 'at risk' an agreement involving the government, insurers, banks, mutual associations is in place, called the 'AERAS' Convention - s'Assurer et Emprunter avec un Risque Aggravé de Santé (Insure and Borrow with Aggravated Health Risk).
For those households to whom the credit institution cannot offer insurance on a customary basis, it will offer a loan under the AERAS convention.
However, there are conditions that apply, whether it is a mortgage or a personal loan:
i. Mortgage - In the case of a mortgage loan the main conditions are that the mortgage cannot go beyond your 71st birthday, and the amount borrowed cannot exceed €320,000.
ii. Personal Loan - In the case of a personal loan the borrower cannot be over 50 years at the time of making the loan application, the loan period is a maximum of 4 years, and the maximum amount that can be borrowed is €17,000.
Both age limits are major constraints for most people, but nothing else is available.
Nevertheless, the demand for such loans is surprisingly high. According to the French Fédération Française des Sociétés d’Assurances (FFSA) in 2016 they received over 400,000 mortgage applications from those having a serious health risk, out of a total of 4 million applications
Although the insurance premium under AERAS is higher than conventional premiums, it is controlled. As a general rule the rate cannot be more than 1.4 percentage points higher than the percentage rate (APR) of the loan given to you. This rule is subject to a maximum income threshold, depending on family circumstances, but is high enough to cover most applicants.
Needless to say, there is the small print of the regulations that you will need to examine, which we simply cannot consider in this article. Insurance contracts are rarely a standard product, but using AERAS you at least have the possibility of making a choice between insurers.
Depending on your medical condition, you may be asked to undergo a medical examination that may lengthen the procedure.
You can undertake your research with your bank, or broker, or with other insurers. If you have good French language ability you can also use an on-line insurance comparator.
With AERAS you will be able to choose the insurer of your choice, whoever maybe your lender.
If you are unable to obtain a mortgage life insurance policy then the banks are obliged to consider other ways of guaranteeing the loan, such as assurance vie or other form of security.
Refusal of Cover
Not suprisingly, there is evidence that the lenders and insurers are not always applying the AERAS agreement in a proper manner.
In particular, there are indications that some cases are being unreasonably refused, that the level of the premium is unreasonably high, or that unreasonable exclusions are being included in the policy.
In the event that you are refused an AERAS loan an independent mediation procedure is available. However, the remit of the mediator is very restricted and they really lack the powers of intervention that are necessary to ensure that this agreement works in the manner set out by the signatories.
Accordingly, the best approach in such circumstances may be to consider the use of a broker, whose expertise and contacts might be more successful.