Borrowers, in connection with the signing of a mortgage contract, incur the basic costs of the loan, consisting of the interest rate, and additional costs associated with, for example, insurance or mortgage disbursement. One of the additional costs is the so-called bridge insurance.

What is bridge insurance ?

When granting a loan, the bank wants to protect itself in case the borrower is no longer financially solvent. Such collateral is an entry in the land register of the property being purchased. This will allow the bank, in the event of insolvency, to seize the borrower’s property and thus compensate for its loss.

Before the collateral is legally valid and the court completes the formalities it sometimes takes several weeks and in larger cities even months. What does the bank do until then? It takes out additional insurance and this insurance is called bridge insurance. So this insurance protects only the interests of the bank.

Costs of bridge insurance

The cost of bridging insurance is incurred by the borrower. They are added to loan interest rate until the entry in the book. The interest rate, depending on the bank’s offer, usually rises from 0.05 to as much as 2.5 percentage points.

Insurance costs also depend on:

  • The amount of the loan taken out
  • The time that will pass from the signing of the mortgage contract to the entry in the land register
  • The offer that the bank will propose. These offers may differ significantly from each other

What does it look like in practice?

In practice, it turns out that in the vast majority of cases the bridging insurance is not paid, because the mortgage entry is made as requested. So the fees that the borrower bears are money spent without justification, since the banks in general do not bear the risk.

The president signed a law that guarantees the refund of bridge insurance

As a result, the Ministry of Justice has begun work on amending the law. The draft of the new law went to the Parliament on July 6, 2022, and it has already been signed by the President on August 16, 2022.

The new legislation states that insurance will continue to be charged, however, once the mortgage is entered, the bank will refund the fee or count it towards the loan payment.

The law comes into force on September 17, 2022.

Who will be able to apply for the fee refund and how?

According to the law, borrowers who signed a mortgage contract after the law comes into force, i.e., from September 17, 2022, as well as borrowers who signed a contract before that date but still have not seen the mortgage established in the land register, will be able to apply for a fee refund.

According to the new regulations, banks should refund or credit the funds to the loan within 60 days after the mortgage is established in the land register. This refund should take place automatically without additional requests. How this will work in practice we will find out soon enough. Banks will certainly adapt their procedures to the current regulations.