A mortgage loan, in other words, a mortgage, is one of the common financial products of both the banking and non-banking sectors, primarily used for the purchase /construction/reconstruction of real estate.
Mortgage loans are most often used to finance the purchase of an apartment, house or its construction (whether you pay the full purchase price or, for example, the price difference when exchanging real estate) or for other construction modifications to the property. The debtor guarantees the creditor with collateral of the purchased or other real estate.
In addition, it can also be used to settle ownership relationships, such as spouses in divorce, in the case of a client’s membership in a housing cooperative that offers a mortgage as a means of payment of membership interest. However, it should be borne in mind that each bank determines the purpose of the mortgage (some banks lend, for example, only for the purchase of a house and not for a cooperative apartment or building a house).
A. Simply apply for the mortgage via the Internet; set your mortgage and repayment period on your bank’s website and have your monthly payments and interest calculated on a non-binding basis.
Despite the simplicity of this step, however, we recommend familiarizing yourself with the offer of more banks, to compare not the interest rate, but the APR. Also read the business terms and conditions of individual banks, learn about any administrative and sanction fees.
Once you have made your choice, go to the bank personally and agree on the terms and conditions. You may also receive a better deal than that shown in your ad or online.
B. As with the vast majority of loans, a mortgage application must meet certain criteria and be accompanied by the necessary documentation. You may encounter requirements such as (the necessary documents may vary depending on the bank’s requirements and the purpose of your mortgage):
C. Upon receipt of the relevant documentation, your application will be subject to an approval process, during which you may be required to provide additional supporting documents (prior to drawing the mortgage).
D. After approval, the bank shall sign a contract. Read it carefully, ask any questions, and only after you understand everything, sign it. If you go to a mortgage with your spouse, he / she must sign the Mortgage Accession.
E. After drawing up the mortgage, it is necessary to submit again several other documents, such as the Notice of lien by the relevant bank (if you refinance) or proof that you are the owner of the property.
Mortgages are provided by both banks and non-banking companies . Therefore, if you have trouble obtaining a mortgage loan from a bank, you can contact the non-banking sector. The unwritten rule, however, is that the easier and faster the acquisition of a loan, the more you overpay and the “cruel” the conditions, interest, sanctions. Even non-bank mortgages offer their pros and cons:
Non-bank mortgages are commonly of the nature of so-called American mortgages. below.
You do not have to repay the mortgage in the most common way, so called annuity , but also otherwise. You can choose for example repayment of linear, progressive, degressive, repayment of combined mortgage loan, or mortgage with the so-called floating rate . Choose the most appropriate option for you and agree on it with your bank as part of the terms negotiation process.
The most common way of repaying the mortgage is annuity payments, which have a fixed amount of interest during the fixation period (for the next fixation period the bank offers a new interest rate with which the client either agrees or refinances the mortgage – transfers it – to another bank where it will repay it conditions). Fixation can normally be chosen by the debtor for 1 year, or for 5 or 10 years.
The annuity repayment includes both the repayment of the debt itself and interest, with the ratio of the two items gradually changing: initially, the borrower pays more on interest and less on debt, and over time this ratio turns over.
The progressive repayment of the mortgage loan is characterized by the fact that the installments increase over time. At the beginning of the debt repayment (for one year) the repayments are lower than in the following years. After this year, the Bank will set a fixed coefficient by which the installment will be increased for each new period.
Progressive installments allow easier furnishing of the house / apartment, etc. right at the beginning of housing, and are also suitable for novice employees who cannot count on the beginning of their career with high pay.
The opposite of progressive installments are degressive installments, when the debtor repays initially more, and over time the amount of installments decreases, again according to the calculation of a fixed coefficient determined by the bank.
Degressive repayment, as its character suggests, is suitable for those clients who can afford to amortize the debt at first with high repayments, and want to repay less with the approaching maturity.
A specific and less frequent method of amortization of mortgage debt is linear payments. It has the great advantage for the borrower that the amount of interest decreases with each installment. How does it work?
In the case of linear repayment, interest is calculated each month on a new basis, based on the principal amount (ie on the part of the debt to be paid). As this principal decreases with each installment, the interest is gradually reduced. Therefore, the borrower regularly repays the amount of the monthly plan + the currently calculated amount of interest.
Initially, these payments are higher than would be the case with the repayment of the annuity, but there is a faster amortization of the entire debt, which is an undeniable advantage.
As the name implies, a floating rate mortgage is one for which there is no fixation, ie the amount of interest is variable.
Otherwise, this type of installment is called repayment of the so-called combined mortgage/mortgage loan. This repayment is based on the fact that for some time the debtor only pays interest to the creditor on the debt. After the agreed period, the repayment of the debt will start to pay, however, with a much shorter maturity.