To protect themselves in the event of default by the borrower, the lending bank always requests financial guarantees, such as the mortgage. Operation, cost, risks … everything you need to know about mortgage guarantees.
How does the mortgage work?
The mortgage guarantee is the legal means that allows the lending bank to protect itself against the risk of default by the mortgage borrower. It involves mortgaging property owned by the borrower. It can be carried out on the property directly concerned by the credit granted or on another property owned by the borrower. In some cases, the mortgage may report to more than one property.
If the borrower can no longer meet its repayments, the lender (the bank) has the option of having the mortgaged property seized and selling it to recover the loaned capital. The attachment may not exceed the value of the property in question and may not affect the income or other property of the borrower. The mortgage guarantee is drawn up in the form of an authentic deed before a notary and is registered at the Land Registry office.
Note that if the borrower can choose the guarantee he wants (guarantee, mortgage, etc.), the bank can demand a mortgage guarantee if it considers that the loan is too risky.
How much does a mortgage cost?
When signing the notarial deed, the borrower must pay mortgage costs, which will then be paid (in part) by the notary to the land registry department and the Treasury. Mortgage fees are calculated relative to the amount of the loan guaranteed by the mortgage and represent approximately 1.5 to 2% of it.
These costs consist of the land advertising tax (approximately 0.7% of the loan), disbursements, the real estate security contribution (0.10% of the sale price with a minimum of € 15), notary fees, the cost of researching mortgage statements and 20 % VAT.
Regarding the fees, know that the notary can not set his rates freely, he must follow a scale directly established by the State. Thus, the fees represent 1,333% of a loan between 0 and 6,500 dollars, 0.55% of a loan between 6,501 and 17,000 dollars, 0.366% of a loan between 17,001 and 30,000 dollars and 0.275% of a loan included beyond 30,001 dollars.
Good to know
By opting for the mortgage to guarantee his mortgage, the borrower takes the risk of losing his property in the event of default in the payment of his monthly payments.
What are the risks of the mortgage?
The mortgage is an advantageous guarantee, both for the lending bank and for the borrower. In particular, it allows the borrower to obtain a mortgage without having to follow too complicated procedures. Unlike a mortgage secured by a surety, in the context of a mortgage secured loan, the borrower runs the risk of being dispossessed of his property if he does not honor his commitments.
In the event of default on his part, the real estate concerned will be seized and sold to reimburse the capital remaining due. The borrower should therefore always expect this eventuality. As seen above, the mortgage also has a certain cost for the borrower. The amount payable represents 2% of the loan amount.
Another risk is that if the sums due to the lending institution exceed the value of the mortgaged property, even after it has been sold, the borrower will still be indebted to the bank for a debt. But this scenario is rare because the lending bank must normally ensure beforehand that the mortgage margin is sufficient.
How to raise a mortgage?
To be able to cancel the mortgage on his property, the borrower must respect the deadline to repay his credit. In theory, a mortgage automatically ends 1 year after the last due date for the loan it guarantees. But if the owner sells his property before the end of the repayment of his credit or if he manages to repay his debt in advance, he can ask the lender to release the mortgage.
He must still pay the costs incurred by this lifting (release costs). These costs depend on the value of the initial loan: they represent between 0.7% and 0.8% of its value. They include the notary’s fees and VAT, the property security contribution, registration fees and administrative costs. Note that the release costs will not be payable by the debtor (the borrower) if it occurs more than a year after the end of the loan.
Mortgage lifting removes the registration of the mortgage on the land registry service file.