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What is a mortgage?

What and how can you use a mortgage?

When you offer some kind of collateral in addition to your payment on your loan, it is called a secured loan. This collateral can be, for example, a motor vehicle or a property. Mortgages can be registered for the latter.

the mortgage

Where can you meet the mortgage?

You can take out a mortgage loan for many credit purposes. Such as:

  • To buy a home with a home loan
  • Home renovation or just building
  • You can also take out a mortgage loan for free use without restrictions. At that time, although they will be registered for your house, this is not a home loan.
  • You can also use it to settle several of your high-interest loans. In this case, the loan redemption was invented just for you.

With few exceptions, you repay these loans in annuities. In this case, your installment is the same every month within the given interest period, only the difference between the paid-in principal and the interest rate differs.

Mortgage repaymentAlthough the concept of a mortgage is basically the same everywhere, but it does matter which loan you pledge the property to as collateral. If you ask, we will be happy to help you choose the right loan for you. You can request a callback in the contact menu.

What is a mortgage good for?

When you add a mortgage to a loan, it is a guarantee for the bank to get the loan back. Unlike an average pledge, the property offered here remains in your possession, you can continue to use it in the same way as before. You will only receive one signal for the lien entry.

The mortgage records the initial amount of the loan, so the rate of entry will not change. Of course, in the case of foreign currency-based loans, due to the exchange rate movement, the amount expressed in domestic currency may be lower or even higher, but the value given in the original currency will no longer increase.

This will reduce the bank’s risk so that it can provide you with credit on more favorable terms.

Lower interest rates

The advantage of using a mortgage is that the reduced risk gives the bank the opportunity to obtain unsecured loans, e.g. unlike personal loans, disburse a higher amount of loan at a lower interest rate and have a much longer maturity.

Larger amount disbursed (possibility for higher loan amount)

The advantage of a larger amount is that you can implement plans with bigger breaths with it. For example this amount is usually enough for buy your own house.

Possibility of longer term

The longer term can be up to 35 years. This means for you that the borrowed capital will be spread over up to 35 years at a lower interest rate, so you will have a much lower installment than if you were trying to achieve the same with a personal loan.

Larger amount to be withdrawn (the bank would give you more)

The longer term and lower interest rate give you the opportunity to borrow even if the installment of this high amount would no longer be able to bear the PTI limits of your payment with the terms of the personal loan. Don’t be fooled that the maximum load capacity is the same in both cases. This is to be understood together with interest. With a mortgage, the interest burden is lower, so you can raise more capital.
The disadvantage is that the borrowing is provided by the procedure, so the date of disbursement can be extended by up to 1-1.5 months.

What are the criteria for accepting a property for mortgage lending?

This will be assessed individually by each bank, so now let’s just look at the framework.

Size and condition of the property

Of course, it doesn’t matter what kind of property we’re talking about. You can sell a smaller property at a lower price than a slightly larger one if needed. And you will also take this into account when looking at whether to accept and register a mortgage on it.

What is even more important is the condition of the property. We usually talk about a fully comfortable property that is at least in a condition suitable for housing. The bank can only waive this for a construction loan, but then expect to give money for its current condition.

At this point, pay attention to the fact that if you were to renovate your property and you have to beat everything up to do so, you should start applying for a loan and valuing it before all the comfort is temporarily lost. The rubble will not be mortgaged by any bank.

Location of the property

The bank monitors the location of the property. From a large city and a small town or village that is otherwise the same house, the bank can disburse more loans to the big city, ie it accepts it to a greater extent as mortgage collateral. This, combined with the previous point, can also mean that a smaller house in a big city matters the same as a larger one in a small town.

Use of the property

Although there is some playing field, if you are taking out a loan as an individual, expect that a property used for industrial purposes will not be accepted as collateral by the bank. Even if it is in the same place as the residential property. Let’s say you built a small workshop or just a doctor’s office on the plot next to your house. When your house is valued by the appraiser, the value of the workshop is expected to be 0. Of course, since both the house and the workshop are on the same plot, you can say goodbye to both of you in the event of a loan termination.

Conversely, that is, if you take out a loan as a company, it is already common for the bank to ask you to register a mortgage on your own private property.

For which you cannot sign a bank mortgage

What you can’t offer, however, is farmland. Even though you have a plow next to your farm, the bank is prohibited by law from taking possession of an area with a gold crown value. So the homestead can come, the land can’t.

The rate of the mortgage

Many types of property made of materials, location and construction can be accepted by a bank. Its value (i.e., the amount you would receive in a normal sale) is determined by the appraiser depending on the current market environment. The value of the loan collateral is also included in the valuation. This is the value that a bank would be expected to receive in a relatively short period of time (usually within 6 months) in the case of a forced sale. Thus, this is the top of the value of the mortgage entry. This can be reduced by the bank depending on, for example, where the house is located.

A special type of mortgage is the general mortgage

There is a case where it is not enough to include a single property as collateral for a given loan. Of course, if you have the opportunity, you can offer more. Many banks accept 2-3 or even more properties for the same transaction.

In this case, the bank does not break down the loan by value, but the same loan amount is recorded on the title deed of each property. Universality is also recorded, so anyone who sees it knows right away that this mortgage affects other properties as well.

In the case of enforcement after the termination of the loan, the mortgagee decides which property or in what order to cover his claim.

Disadvantage of general mortgage registration

  • Unless the bank decides otherwise, a separate valuation is required for each property, which will increase your start-up costs.
  • Releasing a property from coverage may be difficult
  • Due to the registration of the total loan amount, the given property can be encumbered with a new loan only if it can handle the combined amount of the existing and the new loan independently.

The participants in the mortgage transaction, ie the subjects of the lien

The mortgagee / pledgee

One of the actors involved in the mortgage is the mortgagee, which is usually the bank itself. By definition, a mortgagee is the natural or legal person in whose favor the lien is registered.

Although many everyone can be a mortgagee on this basis, but here and now in terms of bank loans, this is the financial institution itself. Enforcing a lien is subject to strict conditions, so you don’t have to fear that the bank might trick you and take your house.

The mortgagor / pledger

He is the person who offers the property he owns as collateral or has some right to it. This right can be a usufruct right or a widow’s right. In the basic case, the borrower, ie the debtor, offers his own house, so that the person of the mortgagor is the same as that of the debtor or his co-debtor.

This is not obligatory, there are cases where the two are different.

When you help with a mortgage

In this case, someone helps the debtor with their own property to take out a loan. This is most common within a family when parents offer their own property as collateral so that the child can buy their own. Here, the parents do not pay the loan, they only offer the missing collateral.

Since more than one property can be offered as collateral for a loan, there will of course be as many mortgagors as there are people involved in it.

The beneficiary as a mortgagor

The beneficiary is not the owner and does not necessarily play any role in relation to the loan. Yet this is a strong enough right for the bank to ask for its consent to waive this right if the property is forcibly sold. No one would buy it under a usufruct right.

Of course, the bank does not expect the beneficiary to provide proof of income or to pay the loan, and may, if necessary, continue to use the property in the same way as before.

Registration of the mortgage

Just as you can register a lien on more than one property for a loan, you can register more than one mortgage on one property. Obviously, this does not mean that you can take out more loans anyway, this is always decided by the bank. This is where not only the value of the property is important, but also the order in which they are paid out in the event of a possible sale. This is determined by the ranking of the mortgage entry.

In most cases, the bank asks you to register the mortgage in the first place in order to get a loan from them. This means that if the property is sold, it will be paid out first. Those in other ranks must also share the remaining money in the order of the ranks.

The bank waives the right to register a mortgage related to a given loan in the first place:

  • If the State requests this place. The State will always appear before the banks not only in the first, but also in the many entries.
  • If the mortgage of the same bank is already on it. That is, you have already taken a loan from them, or you have already offered that property as a mortgagor.

If you look at the title deed of the property, you may come across rights other than mortgage registration. As for the loan, the bank will not deal with it. Examples include line rights and some survey signals.

The registration, as well as other issues related to the property, is handled by the Land Registry. There are strict rules for registering a mortgage, but the bank will explain the details to you in detail when borrowing.

Cancellation of the mortgage

When you have paid your loan to the bank, either with your own money or with the amount of a loan redemption from another bank, you can ask the bank to agree to cancel the registered mortgage on that loan.

On this basis, the land registry will act on the basis of a written statement. This procedure is not automatic, if you do not ask, you will not receive. Although you will not be disadvantaged at this time, as you insure a value of 0 debt, it will hinder the progress of the case when selling the property or taking out a new mortgage.

Questions:

  1. Do you prefer to use the mortgage for your private or business purposes?
  2. How do you decide whether to choose a mortgage loan or some other type of loan?
  3. Do you usually use prepayment for a mortgage loan?

You can search for questions on this topic in the contact menu, or feel free to comment on social media.

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