Obtaining a mortgage loan
To be assessed when choosing a mortgage loan
- Clarity of the contract
- Interest rate
- Accessory expenses
- Duration of the investigation phase
- Late payment interest rate
To be also known
- The modalities of the delivery of the money
- Tax deductibility
- The value of the mortgage
- The procedure for cancellation
- Limits to the freedom of selling
- Supplementary guarantees requested by the lender bank
To be assessed when choosing a mortgage loan
Clarity in the contract
Mortgage loan contracts are often difficult to understand. This is partly due to the need of using technical/legal terms which cannot be substituted; anyway, this problem could be partly solved by means of an effort of simplification which would guarantee a fairer relationship between banks and users. It is advisable to ask in advance for a copy of the contract and, above all, of the “general conditions” proposed by the bank.
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The interest rate
Generally, the rate is the primary or exclusive item which is taken into account when assessing a mortgage loan. It is actually important to evaluate more in-depth also other elements listed below before choosing a financial product rather than another. That in order to assess opportunely the comprehensive impact which the instalments will have on the family balance. For example, it should be considered the difference between entry rate and operational rate and between fixed and indexed interest rate. Moreover, the monthly instalments are composed not only of the capital to be reimbursed and the related interest, but also of the expenses which should be known in advance.
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Accessory expenses
You may be unpleasantly surprised by economic duties stemming from accessory expenses. It is therefore opportune to carefully assess and compare the taxes applicable to the loan, the cost of the appraisal and investigation phase, the insurance – sometimes imposed – by which the bank is guaranteed against the risk of fire/explosion of the building/plot or death of the borrower. It is also good to previously ascertain the notarial costs, which, for various reasons, could vary even being equal the money lent.
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The duration of the investigation phase
When you undertook to purchase a house within a certain term and you are bound to pay a penalty for any delay, a long investigation phase for the grant of the loan could cost a lot. Normally, 60 days represent a term long enough to obtain a mortgage loan.
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The late payment interest rate
Even if – when subscribing a loan – you are sure that you will be ready to punctually pay each instalment to the lender, it is necessary to carefully assess the opposite possibility as well, also in order to avoid that adverse and unpredicted circumstances produce dangerous knock-on effects.
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To be also known
The modalities of the delivery of the money
Since the mortgage is established only with the recording by the Notary in the competent land register, and that could be done only after the stipulation of the loan, it often occurs that the bank holds the lent money until such a procedure is completed. It could mean that the borrower has to wait two or three weeks before having the money at his/her disposal.
Thus, it is opportune to be well informed of the date of actual availability of the money, asking the bank itself or to the Notary. In order to avoid such a wait, a pre-financing could be asked to the bank. In this case, you should carefully get informed and assess the related interest rate. As an alternative, an agreement with the seller should be reached: in case the latter agrees on delaying the final payment, he has to be properly protected. It is up to the Notary the provision and proposal of all the possible different solutions to the parties.
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Tax deductibility
The Law provides for the fiscal deductibility of part of the interests and loan-related costs paid by the borrower for mortgage loans stipulated for the purchase of real estates assets and/or their restructuring or functional restoration. Thus, such a possibility should be carefully assessed.
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The value of the mortgage
The mortgage is the guarantee which allows the bank to enforce its credit when the debtor does not pay within the required term. The obligations of the borrower include the reimbursement of the lent capital, the applicable interests, the late payment interests, the enforcement-related expenses. For this reason, the mortgage is normally recorded for a value far higher than the agreed loan. The recording implies that, up to such an amount, the value of the asset is reserved to the bank and a hypothetic new loan – which not all the banks would grant – could be guaranteed (and therefore requested) only for the residual value.
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The procedure for cancellation of the mortgage
The loan is extinguished with the payment of the last instalment, and so is the related mortgage, being it an accessory right. The mortgage recording, instead, is not automatically deleted and its validity lasts twenty years, in practice from when the loan had been granted. Thus, if the reimbursement lasts less than twenty years, there is a period during which the mortgage recording is still valid without any usefulness. Anyway, its presence could jeopardise the sale of the property or – at least – make it harder.
Today, the Law provides for a particular procedure for the deletion of the recording which is entirely entrusted to the lender bank (art. 40-bis, Testo Unico Bancario), without resorting to the Notary. The whole process can last almost two months. Viceversa, resorting to a notarial deed by which the bank grants the deletion, the recording can be cancelled in a very short time.
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Limits to the freedom of selling
Some loan agreements provide for a prohibition on the borrower (or the guarantor) to sell the mortgaged house before finishing to pay back the loan, obliging the same party to extinguish the latter in advance and, in some cases, to pay a penalty (penalty which is not always permitted by the law, anyway).
Clauses as such must not be underestimated since they could seriously jeopardise the possibility to change your house. Anyway, not all the banks impose them: in some cases, you will be able to ask for their removal; otherwise, you could change the bank. In any case, the prohibition should bear a reasonable time limit (e.g. five years).
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Additional guarantees requested by the lender bank
When granting a loan, the bank has to assess not only the value of the house to be mortgaged but also the capacity of the debtor to pay the loan instalments. For this reason, sometimes, a suretyship from a third person is requested (e.g., from a parent for the son). This banking practice is correct, provided that a limit of value and the duration of the guarantee are set. It is instead to decline the possible request from the bank to be granted a power of attorney for the sale of the house in case of failure of the debtor.
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