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What should be considered when choosing a mortgage
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Mortgage contracts are often difficult to understand. In part, this is due to the need to use irreplaceable technical terms; in part, however, the problem could be overcome by a simplification effort that would ensure a clearer relationship between banks and users. It is advisable to have in advance the text of the contract and, above all, of the 'general conditions' proposed by the bank.
If one encounters difficulties in understanding and if the answers given by the officials are not satisfactory, one can turn either to the consumer associations or to the notary, who will give the appropriate explanations even before the loan is concluded. The lack of clarity in the contract may also be an indication of the poor quality of the product, which makes it advisable to turn to another credit institution.
This is generally the main or exclusive element in the assessment of a mortgage. However, it is important to look into other factors, listed below, before making the choice, as it is worth assessing the overall weight that the mortgage instalments will have on the family budget.
It is necessary, therefore, to find out the difference between the entry rate, which is lower for the first six months, and the full rate, as well as to evaluate the difference between a fixed rate and an index-linked rate, since, for example, a low entry rate may be attractive but reserve the unpleasant surprise of very high full rates, while a fixed rate that is convenient today can become burdensome in a short time. Moreover, in the formation of the monthly instalment, other expenses are added to the interest rate, which one needs to be aware of in good time.
Here you may find unpleasant surprises in terms of economic charges; it is therefore a good idea to carefully examine and compare mortgage taxes, appraisal and preliminary investigation costs, and insurance policies - more or less imposed - with which the bank guarantees itself against the risk of fire/disaster to the property or death of the borrower. It is also a good idea to enquire in advance about notary fees, which, for various reasons, may vary for the same loan amount.
When you have committed yourself to buying a house within a certain time limit and you have to pay a penalty to the seller for the delay, long preliminary investigation times for granting the loan can be expensive. As a rule, 60 days is more than enough time to obtain a mortgage loan.
Even if an applicant for a mortgage does not expect to find himself in a position of not being able to pay his instalments on time, this eventuality must also be carefully assessed in order to avoid unfavourable and unforeseen circumstances producing dangerous knock-on effects.
Since the mortgage only exists from the moment the notary registers it in the mortgage office, and this can only be done after the loan has been stipulated, the bank often withholds the borrowed sum until the paperwork has been completed, which means having to wait two or three weeks before being able to dispose of the borrowed money. In the case of a real estate sale, the seller will consequently have to wait a few days to be paid.
It is necessary to inquire at the bank and at the notary as to when the money will actually be available. To avoid this wait, some banks make the borrowed sum available immediately by way of pre-financing, in which case it is worth checking what interest the bank charges. As an alternative to pre-financing, it is necessary to make arrangements in advance with the seller who, if he sells before collecting the full price, must be properly secured. It is the notary's task to propose and explain the various possible solutions to the parties.
The law provides for the tax deductibility of a portion of the interest expense and related accessory charges paid on mortgages taken out for the purchase of real estate and/or for building renovation work. This possibility of abatement of the tax burden should therefore possibly be examined carefully.
The mortgage is the guarantee that allows the bank to forcibly recover its debt when the debtor fails to pay. To the principal debt (capital) must be added the interest stipulated for the mortgage, the interest on arrears, and the costs of the home auction procedure. For this reason, the mortgage is registered for a much higher amount than the mortgage. This means that up to that amount the value of the house is reserved for the bank and that a possible further mortgage - which, however, banks do not always grant - can only be claimed on the residual value of the property.
The mortgage is extinguished with the payment of the last instalment. The mortgage securing it, on the other hand, remains in force until twenty years have elapsed since its creation, in practice since the loan was granted. For mortgages of less than twenty years, therefore, there is a period of time when the mortgage exists even if it is no longer of any use.
In these cases, it is not advisable to ask the bank to cancel the mortgage unless you have to sell the house. It is worth remembering that the cancellation of a mortgage always takes several months and that its cost is not negligible (about €500 for a mortgage of €160,000).
Some mortgage contracts stipulate that you may not sell the house before you have finished paying off the mortgage, obliging you otherwise to pay off the debt early and thus also face any penalty. Clauses of this kind should not be underestimated because they can create a serious obstacle should one wish to change home. Not all banks impose them: one can ask for them to be removed or change banks. In any case, the ban on selling the house must be contained within reasonable time limits (e.g. five years).
When granting a loan, the bank must assess not only the value of the house offered as collateral, but also the borrower's ability to pay the loan instalments. For this reason, a surety from a third party (e.g. from a parent for their child) is sometimes required. This banking practice is correct as long as the amount and duration of the surety are determined. On the other hand, the bank's request (more often it is the financial companies that follow this practice) for power of attorney to sell the house in the event that the mortgage instalments are not paid is to be rejected.
Renegotiation can be considered a generally used conquest, but it depends on the will of the parties (bank and borrower).
Renegotiation may relate only to the rate or duration, or involve closing the old mortgage and opening a new one with the consequent costs, which must be carefully weighed against the advantage of lower interest rates.
The abuses sometimes suffered by consumers when taking out a mortgage for the purchase of a property, such as onerous penalties in the event of early repayment, limits on the right to sell the mortgaged property by transferring the mortgage to a third party, can now also be combated thanks to the new regulations on unfair terms.
It is precisely vexatious-abusive clauses that have been one of the most problematic aspects on which the Italian Banking Association and the consumer associations that have signed this Vademecum have intervened, in redefining the right balance of rights-duties between customer and bank.
First and foremost, the user must expect that the contractual terms proposed by the bank are always comprehensible and are communicated to him sufficiently in advance.
If certain terms of the contract result in an imbalance of rights and obligations to the detriment of the consumer, they may automatically be deemed ineffective. Consumer protection associations may sue credit institutions that use unfair general terms and conditions and ask the court to prohibit their use.
Applying for and obtaining a home loan today is within everyone's reach. It is normally sufficient to go to a bank and produce the few documents it asks for. This does not justify the high rates sometimes demanded by 'financial brokers'.
Those who apply for a mortgage and need clarification always have at their disposal the consumer associations and the notary, an impartial professional, whose choice is up to the borrower and whose intervention, necessary for the setting up of the mortgage, represents a cost that can best be used to obtain all the necessary advice.