Consumer questions about mortgages are always frequent. Here is ten basic information that is fundamental when applying for a mortgage.
1. What is a home loan?
It is a medium/long-term loan (generally from 5 to 30 years) provided by a credit institution and granted to purchase or renovate a property (even under construction), which requires the assumption of a commitment by the debtor to the repayment of the same with the periodic payment of installments, including principal and interest. The loan is guaranteed by a mortgage and is stipulated with a public deed before a notary.
2. What does a bank evaluate when granting a mortgage?
It evaluates both the economic, financial and asset capacities of the client, and in particular the relationship between income and installment so that the mortgage installment is sustainable over time, and the value of the property which is the subject of the mortgage request.
3. What are the main elements that the customer must evaluate?
The customer must evaluate: the amount of the loan and the installment, the rate offered by the bank (i.e. the cost of the loan), the duration and expenses for stipulating the contract (investigation of the procedure, appraisal of the property, compulsory fire insurance and explosion). When applying for the mortgage, the customer can also request: the mortgage information sheet where he will find all the information relating to the items indicated above, the comparison sheet with general information on the types of mortgage, a copy of the blank contract, the summary and the free guide “The home loan” from the Bank of America.
4. How is the rate applied to the mortgage composed?
The interest rate applied to a mortgage is made up of the reference parameter and the spread. The reference parameter is an interbank rate used in USA and expresses the cost of wholesale financial capital. For variable rates, it can be the ECB, while for fixed rate mortgages it is the IRS. The spread is the percentage increase that is added to the reference parameter of a mortgage; it varies from one bank to another and expresses the margin applied by the bank compared to the wholesale cost.
5. What types of mortgages are there?
Variable rate The interest rate foreseen for this mortgage may change over time based on the trend of the short-term cost of money index to which it is linked. Compared to the initial rate, the interest rate can vary, with pre-established intervals, according to the trend of one or more indexation parameters set in the contract. Fixed rate the interest rate remains fixed for the entire duration of the mortgage, like the amount of the individual installments. Mixed rate the interest rate can change from fixed to variable (or vice versa) at deadlines and/or under conditions established in the contract. The contract indicates whether this step depends on the consumer’s choice and in what was the choice can be made. Two types of rate the mortgage is divided into two parts: one with a fixed rate, one with a variable rate. The double rate is advisable for those who prefer an intermediate solution between the fixed rate and the variable rate, balancing the advantages and disadvantages of each. Variable rate within pre-established limits Formula that adopts a sort of parachute: in the event of a sharp rise in rates, the amount to be paid cannot exceed a certain pre-established ceiling, known as the “cap”.
6. What is the amortization plan?
It is the mortgage repayment plan with an indication of the composition of the individual installments (principal and interest) to be paid and related deadlines. For the variable rate mortgage it is calculated on the rate at the time of stipulation and therefore provides a rough indication of the value of the installments which may change with each change in the reference parameter.
7. What are the additional costs to be assessed?
In addition to the expenditure items to be borne towards the bank, such as the costs for stipulating the contract (investigation of the practice, compulsory fire and explosion insurance), the consumer must bear some charges relating to the services provided by third parties such as: the expected fees for the expert who evaluates the property, for the notary, for any financial intermediary if existing, and the cost of the substitute tax. The APR (Global Effective Annual Rate) is an index that indicates the total cost of the mortgage on an annual basis and is expressed as a percentage of the amount of the loan granted. It includes the interest rate and other expense items, for example costs of processing the case and collecting the instalment. Some expenses, however, such as notary ones, are not included.
8. Once the mortgage has been chosen, is the money immediately available?
No, from the choice of the mortgage to the disbursement of the loan, in the event of a positive evaluation by the Bank, several days may pass, in which the necessary procedures are activated to arrive at the meeting with the notary for the signing of the contract. In this period of time the customer will take care of delivering the requested documents, the bank will proceed with the evaluation of the customer’s situation and the appraisal of the property. When the customer has chosen the notary, the bank will provide the latter with all the documentation necessary for notarial activities in order to arrive at the stipulation date with the loan ready.
9. What does the delay in payment of installments entail?
The late payment of an installment generates a cost (late payment interest) which the borrower will have to pay to the Bank. This is an increase in the interest rate which is specified in the contractual conditions and is calculated on the amount of unpaid installments for the entire period of delay with respect to the pre-established deadlines. In addition to late payment interest, when the installment is paid after the 30th day from the due date, the Bank is required to report such non-compliance to public and private bodies established for credit control and risk, reporting non-compliance to these bodies may jeopardize the obtaining of new financing.
10. What is portability?
It is the possibility of being able to move a loan (and the related mortgage) from one bank to another without costs, which offers more advantageous conditions in terms of spread, duration or type of rate (the operation is called subrogation). The amount requested from the “new” bank will be aimed exclusively at repaying the old mortgage, consequently it will not be possible to request additional sums or modify the contract.
Barry Lachey is a Professional Editor at Zobuz. Previously He has also worked for Moxly Sports and Network Resources “Joe Joe.” he is a graduate of the Kings College at the University of Thames Valley London. You can reach Barry via email or by phone.