What is mortgage credit?
A mortgage loan is a type of credit in which the borrower places a good (usually a property, but may be another good) as payment guarantee.
When a home loan is requested, it is normally done using mortgage credit, since the debtor places the home they are buying as collateral, and the mortgage is mortgaged to the bank until the end of the loan term. The same is true of loans for the acquisition of land for construction or the execution of works in a house.
Another example of mortgage credit lies in the car loan through which the bank usually makes a reservation of ownership over the car.
It should be noted that the immovable property or other mortgage may not even belong to the consumer requesting the credit and may be owned by third parties, provided that they agree.
The mortgage constitutes, in substance, a security for the creditor institution which thus reserves the right to take the asset mortgaged for itself in case of default of the debtor (ie if he fails to settle the loan monthly) .
How to mortgage a property?
Whenever a given asset is delivered as collateral for a loan, it becomes mortgaged. In order to apply for a mortgage, it is necessary to present a series of documentation to the financial institution and to fulfill in advance the requirements established by it (in terms of age, LTV, guarantees to be presented and others that vary from bank to bank).
After the proposal is submitted, it will take a few weeks for the bank to review the application and conduct a risk analysis on the consumer’s profile to decide whether or not it is feasible to take out a mortgage. It is at this stage of the request that banks assess the creditworthiness of customers (in other words, they assess whether the consumer in question has the means to repay the credit. If the opinion is positive then the mortgage credit is approved and the contract.
How are the interest rates on a mortgage loan?
Compared to consumer credit, interest rates applied to the mortgage of property are usually lower. In turn, and of course, the repayment term is more extensive.
What documents are needed for a mortgage loan?
Mortgage credit is the type of loan that most documents require on the part of the consumer, being necessary that this one gives different types of documentations in the two great phases of the process.
1. Analysis and approval
- Identification document (of all holders): Citizen Card or Identity Card with Taxpayer Number;
- Last IRS Declaration and respective Settlement Note;
- Declaration of contractual relationship (issued by the employer);
- Receipts due in the last three months or green receipts for the last six months (whichever applies);
- Bank statements of the last three months;
- Proof of IBAN.
2. House evaluation
- Land Registry;
- Certificate of Content;
- Plant of the property.
Although the documents requested for analysis of the mortgage lending process may vary from bank to bank, the ones mentioned above are usually ordered.
How to compare loan offers with property guarantee in Portugal?
Before deciding which bank to buy the home mortgage loan, it is essential to make an informed comparison based on the conditions that are being offered. For this comparison, the European Standard Information Sheet (FINE), which the financial institution must provide when making a binding offer, should be carefully consulted. This document contains all the information that the customer needs to know, namely:
- Amount and duration of the loan;
- Type of interest rate (variable or fixed);
- Total Amount Imputed to the Consumer (commonly referred to by the acronym “MTIC”, reflecting the total cost of credit to the debtor);
- APR (Annual Effective Annual Rate), which indicates the cost of credit expressed as a percentage, including all costs related to the financing (insurance, commissions and the like);
- Financial plan for the mortgage credit (indicating the monthly installments in each month up to the end of the repayment term);
- Clarification on early repayment (partial and total) commissions.
According to European legislation, the financial entity is obliged to give the client a minimum period of seven days in order to evaluate the conditions of the mortgage credit that he will contract. Throughout this period of reflection the consumer can give up the offer.
What types of mortgage are there?
Mortgages differ according to how they are determined.
While mortgage credit is based on a voluntary mortgage – that is to say, resulting from mutual agreement between the bank and the customer, being processed through a request for financing from the consumer – there are two other categories of mortgage that are characterized by are involuntary: legal and judicial.
The legal mortgage results directly from the law and applies in favor of the State, local authorities or other public entities whenever the debtor is indebted and has no other way of paying off their debts. A common example in which this type of mortgage applies is Social Security debts. Through legal mortgage the debtor is required to give his assets as collateral to repay his debts.
In turn, judicial foreclosure results from a judgment issued by a court in the course of legal proceedings whereby it is determined that the debtor has to pay off a certain debt by means of a mortgage registration on his assets. Judicial mortgage is typical of insolvency situations.