The mortgage loan allows you to borrow money from the bank for a real estate project. It can be buying a home, a house to renovate, a building plot …
Find all the useful information on mortgage credit below:
Mortgage: Real, immovable and indivisible law, which encumbered immovable property to guarantee payment of a debt.
What is a mortgage?
The bank needs a guarantee to ensure that you will actually repay it and to do so requires you to mortgage your property.
The mortgage is therefore the guarantee that you are required to pledge in the context of a mortgage loan. If you are no longer able to repay your current loan, the lender is entitled to seize your property to recover the money it has loaned to you.
When you take out a loan, you have to repay the monthly installments. Your bank – or any other financial body that lends you this money – does not want to take any risks. To grant you this loan, the bank takes into account your income, all combined. However, if one of your sources of income dries up (you lose your job for example, you divorce …) and you are no longer able to assume the payment of your deadlines, your house, land, apartment, etc. ., constitutes the guarantee which allows the organization to recoup its costs. He can put it up for sale to recover his money, penalties included.
What is the mortgaged property?
Typically, the mortgaged property is the property for which the loan is made. However, you can definitely suggest to your lending organization that you mortgage another property. You must of course own it and its value covers that of the loan.
It is not necessarily real estate, it can be a boat, a collector car or any other high value property.
Where is the mortgage kept?
The mortgage is officially recorded in the register of the mortgage conservation office. This organization, managed by the Belgian State, keeps a record of your mortgage, mentioning the value it represents.
Why choose mortgage credit?
The purchase of real estate is substantial and commits you for many years. If you want to acquire a property in a fairly tense area where prices are constantly increasing, the mortgage is a good compromise to avoid having to wait too long and see house prices continue to rise.
How does the mortgage actually work?
The signature of a mortgage is made at the notary and goes through a signed deed. Before you buy the property, your lender pays the amount of the purchase to your notary. Once the sales contract has been signed, the notary pays the purchase to the former owner.
Be careful to provide the funds necessary to settle the notary fees and fees, as they are most often to be paid out of your own funds.
If your project is a building construction, your lender pays you the necessary money, as and when the invoices from suppliers and service providers are presented.
Who can take out a mortgage?
To take out a mortgage, you must be at least 18 years old. Before submitting your request, take stock of your income and estimate the amount of the monthly payment that you will have to repay.
Add up your wages, property income, annuities, or any other income and set them against your fixed expenses: rent, water, electricity, telephony, etc., as well as any outstanding credits. The monthly payment that you will have to pay should not exceed one third of your monthly income. In addition, your borrowing capacity is reduced if you already have other loans outstanding.
In all cases, your lender will perform this calculation. It will ask you to justify your income and will also linger on your savings account. Beyond the amount you can have in one or more savings accounts, a lender considers your way of life. He will be reassured if you have savings and, on the contrary, will be more suspicious if you have never put a penny aside.
What are the fees related to a mortgage loan (fees payable to the notary)?
The costs associated with a mortgage are not trivial. Everything goes through a notary, the signing of the loan as of the purchase. The latter invoices you for his own fees, but also occupies the role of collector for the State, because he collects the taxes that will be transferred to him.
You must therefore provision the sums necessary to pay these costs.
Research and administrative formalities
Before signing your mortgage, the notary must carry out certain research and administrative formalities. These are urban research and requests for certificates.
It is important that you discuss this with the notary before, because if some are imposed and compulsory, others are optional, this is the reason why the amount of these fees fluctuates from one notary to another.
It is often mentioned an average of around $ 1,000 which is subject to VAT, but this is only an estimate to give you an order of magnitude.
Mortgage fees are calculated according to your particular case. Allow 0.3% of the value of the mortgage loan requested and the accessories (estimated at 10% of the loan).
The conservation rights represent remuneration for the mortgage registrar who ensures that no other mortgage is taken on the property. They amount to $ 250 for a credit below $ 272,727 and $ 950, above this amount.
The cost of the annexes
The rights attached to the mortgage deed amount to $ 100.
The cost of registration
Registration fees represent 1% of the value of the mortgage credit and accessories, estimated at 10% of the credit.
The writing costs
Writing rights were previously called stamp rights. They amount to $ 50 HT, or $ 60.50, with 21% VAT.
The notarial fee, subject to VAT, is fixed on a basis established by law. Then, a different scale is applied depending on whether it is a loan or a credit facility that allows you to borrow an amount already repaid. The higher the amount, the lower the percentage.
As this expense depends on the amount of your mortgage, its amount will be the same for all notaries.
What are the upfront costs?
The administration fees are invoiced by the lender. They are legally capped at $ 500 and, for a bridge loan without mortgage, at $ 300.
The cost of expertise
The lender must verify that the value of your property will be sufficient, if it were to be sold by forced sale due to non-payment. He therefore has your property appraised by his own experts and invoices you for these appraisal costs.
What is outstanding balance insurance?
Balance outstanding insurance is useful if you borrow from more than one. In the event that one of you dies before the mortgage ends, the surviving partners – as well as the heirs – are protected and do not have to reimburse the part owed by the deceased.
This insurance allows you to obtain more attractive interest rates.
Do I need a personal contribution to take out a mortgage?
With a mortgage, personal contribution is not compulsory, but it is much more difficult without putting part of your savings at stake. Personal contribution can come from any source: savings, sale of property, inheritance … It allows you to finance part of your real estate project.
Generally, financial organizations ask you for a minimum contribution of 10% of the total amount of your loan. In reality, 30% is the most common proportion. The higher your personal contribution, the easier it is for you to take out a mortgage.
A personal contribution will facilitate negotiations with the bank
On the other hand, if your personal contribution is substantial, you find yourself in a position of strength to negotiate the interest rates with the lender, as well as their general conditions.
However, if you have savings, it is advisable not to use everything for your personal contribution, but to keep some of it. There can always be unforeseen events in life and your savings allow you to cope with the hard knocks and give you time to recover.
What are the elements on which the lender is based to fix the loan amount?
The bank first calculates your savings capacity, before considering the property for which you are introducing this loan.
It is based on four elements, before giving you its agreement:
- the appraisal of the property by an expert, whether it is a purchase for use in the state, a renovation or a construction project;
- your personal contribution: savings, inheritance, sale of another property (not necessarily real estate), etc. ;
- the guarantees and sureties that you can provide;
- your ability to repay.
How long is a mortgage?
As with any loan, the length of the mortgage depends on several elements, however, your repayment capacity sets a limit on your monthly payment. You should also take into account your age and your family situation.
The lender does not just look at the numbers when you borrow, but projects into the future. A mortgage can run for ten, twenty or more years. It is therefore necessary to take account of events which are foreseeable.
You may have less repayment capacity if you retire because your income is falling; if you have children, you have to plan when they are going to do studies that will strain your budget…
On the contrary, you will have contributions that will facilitate your repayments if you have a debt that will be extinguished soon; if you risk touching an inheritance; if your professional situation changes if you take over a family business…
The longer the loan term, the more you can borrow because the repayments are spread over time and the amounts are lower. In return, the total amount to be reimbursed will be higher, because it includes interest.
Is it possible to revise the conditions of the fixed rate mortgage?
If you took out a loan at a time when rates were high and then dropped considerably, it is not possible to revise the rate which is fixed by definition. On the other hand, it is possible to close your initial credit, in order to take out a new mortgage loan which will relate to the balance which remains due.
It is not always interesting to do so and your lender can also dissuade you from doing so. Each case is specific and proportional calculations have to be made. In fact, if you have already reimbursed the majority of the interest which is concentrated at the start of the loan, you only have capital to repay. In this case, the drop in interest rates would no longer affect your monthly payment by resetting your credit, especially since you must take into account the administration fees and other costs related to the transaction.
What is a capital amortization mortgage?
The mortgage with principal amortization is the most frequently used. It consists of amortizing the borrowed sums, that is to say repaying part of the capital each month, but also the interest on the sum.
As the interests are important, they are proportionally more important than the sum allocated to the capital at the beginning of the loan. Over time, interest decreases in favor of capital.
You can also request that your monthly payments decrease over time. In this case, you will always reimburse the same amount corresponding to the capital. As the interest decreases progressively, your monthly payment decreases mechanically.
What is a capital reconstruction mortgage
Another solution that works with a monthly amount, called “premium”, which allows you to repay the entire amount borrowed, at the end of the contract. It comes from a professional activity, with a pension capital, set up by your employer, or from life insurance.
For the duration of the loan, you pay the interest on the amount borrowed which is added to the premium.
The life insurance contract can be type 21 or type 23.
Life insurance of the “branch 21” type is better known by the term “savings insurance”. It is accompanied by a guaranteed return which can possibly be supplemented by a profit sharing, which is not guaranteed, but depends on the results of the insurer.
Since the reimbursement of premiums is guaranteed from the start, by paying regularly, you can be sure that your borrowed sum will be fully reimbursed at the end of the contract and that your lending organization will recover the entire amount.
Life insurance of the “branch 23” type is coupled with an investment fund composed of assets. Its return is not guaranteed, but depends on the performance of one or more investment funds. Taking into account this fluctuation, the value of the fund varies and in this case you cannot be guaranteed that the entire capital borrowed will be reimbursed at the end of the contract.
What is the purpose of the bridge loan?
You can take out a bridge loan which is a short term home loan. It acts as a bridge between the sale of one property and the acquisition of another. For a limited time, you need liquidity to make the junction, or the bridge.
The bridge loan cannot last for more than three years. His interest rate is fixed. So, your lender makes a certain amount of money available to you. It is used to acquire your property, while waiting for the other to be sold.
Fixed rate credit or variable rate credit, how to choose?
You can borrow at fixed or variable rates and it is important that you understand the issues, because the risks and consequences are not the same.
Fixed rate credit
When you take out a fixed rate loan, you risk no surprise, good or bad, you sign for a specific interest that will not move, throughout the duration of the loan. This is undeniable security.
With fixed rate credit, you are guaranteed a stable monthly payment. The appropriateness of choosing this type of loan depends on the current situation. If you are borrowing at a time when rates are low, you are not afraid of the increases that may occur. On the other hand, if, when you take out the loan, the rates are high, if they come down, your monthly payment will not go down.
Variable rate mortgage credit
The variable rate can, as its name suggests, vary, up or down.
If you choose a variable rate credit, there are then many subtleties that will influence the evolution of your rate. The formulas which allow the lender to change their rates are predetermined.
The changes can be linear. For example, a 1/1/1 formula means that your rate is revised every year; the 3/3/3 formula implies a change every three years, and so on.
Changes can be fluctuating. For example, the 10/5/5 or 20/5/5 formula, or the 25/5 formula, with only one change.
At each maturity, your rate being reviewed, your monthly payment may fluctuate up or down. The different formulas are not all offered by all organizations.
What is the rate capped in a variable rate mortgage
The rate capped
With variable rate credit, you can be protected by the capped rate, also called secure rate. The base rate of capped credit is often a little higher than conventional variable rate credit, but you have the guarantee of better rate stability.
A range is determined at the time of signing the loan, so that you benefit from a framework that protects you if rates soar, thanks to the high range. The low range is a guarantee for the bank, in case the market collapses.
The cap is attached to the variable rate loan when the loan is signed. Banks generally offer rates capped at 1, 2 or 3 points.
Advantages and disadvantages of variable rate loan
It is obvious that the variable rate is more risky than the fixed rate loan. Nevertheless, you can choose a capped variable rate loan, to limit your risks.
You have to look at the environment when you take out the loan, but you can never accurately predict where the market will be in 5, 10 or 15 years.
Variable rate loans offer lower interest rates than fixed rates at the start of the contract. If the rates are high when you sign, it is in your best interest to choose this option. If the market goes down, you will be profitable, because your monthly payments will also go down.
Unfortunately, if interest rates soar, your monthly payment will increase.
Can you close your current mortgage loan to buy a new property?
Whatever the reason, you can decide to resell your property during a mortgage. You then have two options: transfer your credit to your new home, or liquidate your old credit, and then open a new one.
Transfer of your mortgage credit
If you have another property in sight, you can transfer your mortgage to your new home and the solution can be quite attractive.
Indeed, in this case:
- the cost of transferring your mortgage is lower than the cost of writing off;
- you avoid the costs of opening a new mortgage loan;
- your credit continues, there will be no indemnity to pay to the lender;
- the conditions of your old credit remain current;
- you maintain your tax benefits.
However, you must pay the costs of the file and expertise.
Liquidate your mortgage loan to take out a new one
It is sometimes in your interest to liquidate your loan before taking out a new one. This is the case if the economic situation has changed and the proposed rates have become much more attractive.
Do not forget to include the costs of the file and the expertise.
Can we liquidate a mortgage before its term?
It is possible to liquidate your mortgage before its term, provided that you have the necessary sums that will allow you to free yourself from your lender.
On the one hand, you must repay the balance of your mortgage loan and, on the other hand, an amount which corresponds to the re-employment allowance. It is a lump sum compensation which allows your lender to cover part of the interest he will no longer receive on your credit.
Are there mortgage rules?
Banks are subject to the rules of the FSMA. It is the authority of Financial Services and Markets.