Mortgage credit

Mortgage credit is a  type of credit that is backed by  a mortgage guarantee, that is, if the credit debtor could not pay the installments, the creditor could get the mortgaged asset (usually a home).

This credit is aimed at the acquisition of real estate  (usually a home). It is important to note that the maximum amount of the credit will be the value of the property: a credit cannot be granted for an amount greater than the property to be acquired. For example, if the house is valued at € 200,000, the credit may not be higher than that amount, but lower. In short, a mortgage loan can only be granted for the acquisition of a real estate, with the maximum limit of its value.

Characteristics of mortgage loans

The mortgage guarantee is the main characteristic of mortgage loans. When formalizing the operation (when buying the property with the credit granted by the financial entity), the property acquired is taxed with a mortgage .  In this way, if the credit is not paid, the financial institution or creditor could execute this mortgage guarantee. This execution consists in that the financial entity could sell the property on which the mortgage falls to satisfy the outstanding debt. Here we would encounter two situations:

  • If the amount obtained from the sale is greater than the outstanding debt, the remaining part must be paid to the debtor. For example: if the entity manages to sell the property for € 100,000 and the outstanding debt was € 60,000, the remaining € 40,000 must be paid to the debtor.
  • If the amount obtained from the sale is less than the outstanding debt, the financial entity may be directed against all of the debtor’s present and future assets, until the total debt is paid.

It is important to emphasize that the debtor’s responsibility is both with the mortgage of his property and with the rest of his present and future assets.

Therefore, we find that in a mortgage loan there are additional guarantees to other loans, such as personal ones (the mortgage guarantee). These additional guarantees make, for example, the applicable interest rate lower than in other loans.

When to apply for a mortgage loan

Unlike others, the mortgage loan can only be requested under certain conditions: only for the acquisition of a real estate and with a maximum limit of its market value. However, not always when a property is to be acquired, a mortgage loan must be requested.

Personal circumstances must be taken into account: if, for example, money is available, it is necessary to assess whether it is worth paying the interest associated with the credit or not. And the existence of other forms of financing must also be taken into account: mainly mortgage loans.

Main differences between a loan and a loan

In terms of banking , a ‘ loan ‘ and a credit, although similar, have differences. In the credit , the bank provides the client with an account, where the client will access the amount of money he needs and he usually pays the requested credit periodically, with the expenses and interests added by the entity.

For its part, in a ‘ loan ‘ , the bank makes available to the debtor a fixed amount of money, which must be returned, together with interest, at a predetermined time. It is usually a medium or long term operation, which is amortized in regular installments, as the client pays for it. However, in both cases, it is the banking institution that lends money so that within a certain period it is returned along with some interests (principal + interest).

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