Before agreeing to lend you a sum of money for your real estate purchase, a bank will ask you for a concrete guarantee.
She wants to make sure she can recover her bet in the event of default on your part – if you find yourself in the situation of not being able to repay your loan. The real estate mortgage is the most common of these guarantees. Here are four questions to better understand this mechanism!
What is a real estate mortgage loan and what does it entail?
Lending money is always a risk. The longer the loan period, the greater the uncertainty for the bank: at any time, a problem may prevent you from repaying all of your mortgage. It is to answer this eventuality that the lending institutions force the subscribers to choose a method of guarantee. The real estate mortgage is one of them.
The mortgage is therefore a guarantee taken by a lender on the real estate that the money allocated allows to acquire. It always deals with this type of property, only in the context of a mortgage. If, for any reason, you are no longer able to repay your credit, the real estate mortgage allows the bank to seize the property for resale.
In other words, the mortgage is the safety net stretched by the bank as part of a home loan. It guarantees the proper performance of the payment obligation, and commits you to repay your debt.
How does the real estate mortgage loan work?
It is also referred to as a “conventional mortgage” because it arises from a contract signed voluntarily by both parties, that is, when the debtor and the creditor agree before a notary. This guarantee relates to the property acquired thanks to the credit granted, including if this property does not exist in fact (if you buy off plan).
The real estate mortgage only plays in one case: if you can not repay your loan. The bank can then request the seizure of the property and proceed to its sale, but only by decision of justice – your banker can not decide alone to take your keys! Beforehand, however, the establishment must have registered the mortgage with the land registration service.
Finally, the real estate mortgage is lifted as soon as you are done paying off your principal due. This can be done in three ways: once the credit is fully settled and the property acquired; after the seizure of the property and its resale by the bank; or when the loan has been settled following the resale of the property by you (prior to the maturity of the loan). It remains registered in the land advertisement during the year following the balance of the credit.
How much does this guarantee cost?
In addition to the registration to the land registration service and the related tax, at your expense, the real estate mortgage generates various expenses. These are included in the fees paid to the notary, to cover taxes and disbursement fees. On average, the mortgage costs between 1.5 and 3% of the total amount borrowed.
However, other fees may apply during the course of the loan. If you repay your loan in advance, you will have to pay yourself to raise the mortgage on your home: these are the costs of release.
What are your alternatives?
The real estate mortgage is not your only option. You can also opt for other guarantees: the lender’s and the bank guarantee. The first is similar to the mortgage in its overall operation (the guarantee relates to the property purchased and the contract must be established before a notary). Since it is not necessary to register it in the land registration service, is less expensive; but it can not relate to goods under construction.
The second, the bank guarantee, works very differently. In this configuration, it is a bonding agency that guarantees for you, and is committed to take over if you can not repay. This is a very practical option at all levels: the bank is fully reassured (it does not even need to seize the good) and the deposit is the least expensive guarantee for borrowers. The only problem is that the bonding organizations choose the files with great care and according to many criteria!