Mortgage agreement: The word “mortgage” has become quite commonplace for the citizens of the Federation. But, unfortunately, knowledge of the word does not guarantee knowledge of all the pitfalls associated with a mortgage agreement.
It would seem, where is easier? Many are sure that a mortgage is just a home that is bought on credit. In fact, this is not entirely true. In fact, a mortgage is money that a bank lends to a client secured by real estate. That is, under a mortgage agreement, your home or other real estate acts as a guarantor that you will repay the loan. Otherwise, your property will go to the bank.
There are several types of mortgage agreements, certain conditions of conclusion and, of course, the rights and obligations of the parties, without knowing which, you can be left homeless and heavily in loans. It is about these nuances that we will tell in our article.
What is a “mortgage agreement in simple words
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A mortgage agreement is an official document that confirms that you have received funds from the bank, the return of which is your property. Mortgaged property is not always housing that you purchase on credit. It can also be real estate that you or your relatives already own.
The agreement fixes the conditions for concluding a transaction between the pledger (that is, an individual who pledges his property to the bank) and the pledgee (that is, the creditor, which, as a rule, is a bank). It also reflects the order of repayment of the loan.
Tip: Read the terms of the agreement carefully, because in some cases the bank has the right to prohibit the pledger from registering other people in the mortgaged apartment, renting it out or redevelopment. It is better to know in advance about possible “surprises” so as not to accidentally violate the terms of the agreement.
What are the types of mortgage contracts
The most common type of mortgage agreement is the Standard Purchase and Sale Agreement (SPA). It can be of three types:
- Money in the morning, chairs in the evening. First, the bank issues a loan, then you buy housing with the loan funds, which becomes collateral.
- Chairs in the morning, money in the evening. A mortgage loan is issued against the security of the property that you already own. Moreover, it can be not only an apartment or a house, but also a flying, sailing or space ship.
- Triple deal. In this case, three parties are involved in the contract: the buyer, the seller and the party that issues the funds for the purchase.
Keep in mind that the type of agreement is chosen by the bank that issues the loan funds. Therefore, we advise you to study different offers from different financial institutions before entering into a contract with one of them.
Note: A mortgage loan can be obtained not only for improving housing conditions (buying a house or apartment), but also for repairs, construction and any other purposes. Provided that you have something to pledge to the bank, of course.
Important points of the mortgage agreement
The official language in which all documents are written is quite difficult to understand the first time. Especially in a hurry, under the watchful eye of a bank employee. Therefore, it is advisable to familiarize yourself with the mortgage agreement in advance. This can be done on the bank’s website, where, as a rule, there are samples that can be downloaded.
When reviewing the contract, we advise you to pay attention to the following points:
- The possibility of changing the terms of the contract unilaterally.
- Termination conditions under various circumstances.
- Possibility and conditions of early repayment of the loan. Some banks provide for a penalty or a certain period during which the client cannot repay the loan ahead of schedule.
- Interest rate type: fixed or floating.
- Method of payment: differentiated (every month you need to pay a fixed part of the debt plus interest on the outstanding part of the loan) or annuity (the amount of the entire loan is divided into equal parts for payment monthly).
- Penalties and penalties for late monthly payments.
Tip: Try to choose the bank whose mortgage agreement describes the procedure for terminating the agreement as clearly as possible, both on your part and on the part of the financial institution.
Basic rights and obligations of the parties
The main obligation for both parties to the mortgage agreement is compliance with the terms of the agreement. In addition to the most obvious, there are a number of nuances that a bank and an individual are entitled to:
- Both parties are obliged to agree and prescribe in the contract the cost of housing. Third parties (official appraisers) are often involved in estimating the value.
- The mortgagor has the right to live and register his family in a house or apartment, which he pledged to the bank.
- The bank (aka the lender) has the right to prohibit the mortgagor from selling, renting or redevelopment in mortgaged housing.
- The mortgagor is obliged to timely make monthly payments and repay the amount of debt on the mortgage.
- The creditor may arrange inspections of the condition of the pledged property.
- The pledgor is obliged to maintain the pledged property in due order.
Note: Please note that the bank may not only arrange checks, but also require the mortgagor to repay the loan ahead of the deadline specified in the contract if the housing is not kept in order. That is, if you need to make major repairs in the apartment, and you refuse to do it or deliberately damage housing, the bank will not want to wait until the collateral depreciates.
How to get a mortgage
First, check out the different mortgage offers from different banks. So, for example, the interest rate from VT Bank in 2020 starts from 7.9%, while the Sberbank rate starts from 6.5% for housing under construction.
Consider not only the interest rate, but also the costs: property insurance (this is a prerequisite), the cost of the appraiser’s services, the state duty.
Second, choose a property. If you stretch this process for years, then the bank can change the terms of the loan: the amount of the minimum down payment, the interest rate, the calculation rules , etc. Therefore, study the current offers for the current year 2020 and do it better when you already have housing for accept.
Third, collect the documents. The standard list of documents for concluding a mortgage agreement looks like this:
- Passport of a citizen of the Federation.
- Income statement.
- Copy of work book.
- Real estate passport (cadastral and technical).
- The seller’s passport and documents confirming his ownership of the property.
- Real estate appraisal report.
Tip: Carefully study the list of documents on the website or at the bank branch. In addition to the standard ones, the lender may request additional documents that are better prepared in advance.
Please note that registration with Rosreestr is a prerequisite for a mortgage loan. For registration to take place, you need to pay a state fee. In 2020, its amount is 2,000 Dollars for an individual for registering an apartment or house and 350 dollars for a land plot of SNT, DNP, LPH and IZHS categories.
How to terminate a mortgage
If the pledgor wants to terminate the contract, then he will have to negotiate with the bank. It is impossible to unilaterally refuse the terms of the mortgage.
There are two options for terminating a mortgage agreement. The first option is the resale of a mortgaged apartment or house with an assignment. To do this, the owner of the apartment needs to take permission to sell from the bank and be prepared for the fact that the new contract will contain a clause according to which the proceeds from the sale must be transferred to the bank to pay off the debt.
The second option is debt restructuring. If the borrower is in a difficult financial situation, the bank can make concessions and recalculate the monthly payment down.
consider whether you can pay off the loan and at the same time maintain your standard of living.
When studying sample contracts from banks, consider the transparency of the conditions, possible pitfalls, fines, penalties, rights and obligations of the parties. Pay attention to the terms of termination of the mortgage agreement, they should be as simple and clear as possible.
When choosing the currency in which you will take a loan, stop at the one in which you receive a salary. If you receive a salary in rubles, then it is better to take a loan in rubles.
A mortgage is a responsible step, take it seriously and then you will succeed.