To protect themselves in case of default of the borrower, the lending bank always asks for financial guarantees, such as the mortgage.
The operation, cost, risks … everything you need to know about the mortgage guarantee. Mortgage, how does it work? The mortgage guarantee is the legal means that allows the lending bank to protect itself against the risk of default of the real estate borrower. It consists of mortgaging a property owned by the borrower.
It can be carried out on the property directly concerned by the credit granted or on other property owned by the borrower. In some cases, mortgages may affect more than one property. If the borrower can no longer meet his repayments, the lender (the bank) has the opportunity to seize the mortgaged property and sell it to recover the loaned capital.
The seizure can not exceed the value of the property in question and can not affect the income or other property of the borrower.
The mortgage guarantee is drafted in the form of an authentic deed in front of a notary and is registered in the land advertising office. It should be noted that if the real estate borrower can choose the guarantee he wants (surety, mortgage …), the bank may require a mortgage guarantee if it considers that the loan is too risky.
What are the risks of the mortgage?
The mortgage is an advantageous guarantee for both the lender and the borrower. In particular, it allows the borrower to obtain a mortgage without having to follow too complicated a process. Unlike a mortgage secured by a bond, in the context of a mortgage-guaranteed loan, the borrower runs the risk of being dispossessed of his property if he does not honor his commitments.
In the event of a default on his part, the property concerned will be seized and sold to repay the remaining principal owed. The borrower should therefore always expect this eventuality. As seen above, the mortgage also has some cost to the borrower. The amount payable represents 2% of the loan amount.
Another risk is that if the amounts owed to the lender exceed the value of the mortgaged property, even after it is sold, the borrower will still be liable for a debt to the bank. But this is rare because the lending bank normally has to make sure that the mortgage margin is sufficient.
How do I raise a mortgage?
In order to cancel the mortgage on their property, the real estate borrower must meet the deadline to repay his credit. In theory, a mortgage automatically ends one year after the last repayment period of the loan it guarantees. But if the owner sells his property before the end of repayment of his credit or if he manages to repay his debt in advance, he can ask the lender to proceed with the release on the mortgage.
He will still have to pay the costs of this lifting (the release fee). These fees depend on the value of the original loan: they represent between 0.7% and 0.8% of its value. They include notary fees and VAT, property security contribution, registration fees, and administrative costs. It should be noted that the release fee will not be payable by the debtor (the real estate borrower) if it occurs more than one year after the end of the loan.
The lifting of the mortgage removes the mortgage registration on the land advertising service file.