Are you planning to take out a home loan? Before the bank agrees to lend you the funds, you’re going to have to show your hand – and use a loan guarantee. For the lender, this guarantee is security: in the event of a problem in the repayment of monthly payments, if for example, you are no longer able to pay, the property you own will be used to pay off your credit. The most common of these insurances is the mortgage guarantee, or simply the mortgage.
What is a mortgage guarantee?
The mortgage guarantee (like all other loan guarantees) allows the lender to protect itself against the risk of borrower default. If you were to no longer be able to repay your monthly credit payments, for example as a result of a personal concern not covered by your credit insurance, the legal mechanism of the mortgage will give the bank the opportunity to seize the property and recover all or part of the funds paid out. This is why home loans and mortgages are usually linked.
Mortgage guarantees are the most common of the protection mechanisms required by banks. Generally, it is used in loans to finance properties not yet built or under renovation: VEFA, construction of a detached house, or major development work. It is also a regularly preferred option when a borrower wants to renegotiate their credit.
How does the mortgage work?
The principle of mortgage guarantee is simple: if you can no longer pay your monthly mortgage payments, this mechanism allows the creditor to seize the mortgaged dwelling (the one you buy with the loan or any other property of which you would be the owner) and to have it sold at auction. The proceeds of the sale are redistributed to the bank, which can cover its costs. But beware: if the financial transaction is not up to the amount that remains to be repaid, you end up de facto in debt.
The mortgage is voluntarily granted by the borrower. It requires the establishment of a notarized deed, as well as registration with the land advertising services (replacing the mortgage retention office).
It runs for the duration of the real estate credit and remains registered with the services of property advertising one year after the end of the repayment (but not beyond 50 years).
How do you control your costs in the event of a home loan and mortgage?
The costs incurred by the purchase of a mortgage guarantee are due by the borrower. These fees include:
The notary’s emoluments;
The property advertising tax;
The contribution of property security;
Some of these fees are fixed, others are proportional. Therefore, the higher the amount borrowed, the less the cost. Still, count on an average of 1.5%, which means, for a home loan of 200,000 euros, nearly 3,000 euros to pay.
Note, however, that you can reduce these fees:
By endorsing your loan agreement (zero-rate loan, ELP, PAS), the notary’s emoluments are then lower, and the property advertising tax not collected.
Playing on your borrower profile to negotiate these fees (or other ancillary fees, so as to balance your costs).
By using a real estate broker to negotiate the best costs for you.
Finally, be aware that there are so-called “mortgage release” fees. They apply when you pay off your credit in advance or when you resell your property before you have paid off the loan, for the establishment of a notarial deed that denotes the mortgage guarantee registration.