Mortgage loan
Mortgage loan is the slang term for loans that are secured by mortgages on at least one property .
General
The compound mortgage loan indicates that a loan is secured by a mortgage . However, this is a colloquial simplification, because other liens ( mortgage , land charge ) as collateral may be used. Mortgage loans are the most important type of loan at mortgage banks , where they serve as cover for mortgage Pfandbriefe in accordance with Section 12 (1) of the Pfandbrief Act (PfandBG) . Pursuant to Section 13 (1) PfandBG, the mortgages may only encumber real estate , rights equivalent to real estate or rights of a foreign legal system that are comparable to rights equivalent to real estate under German law. The encumbered properties must be located in a member state of the European Union or another signatory to the Agreement on the European Economic Area , in Switzerland , in the United States of America , in Canada , in Japan , in Australia , in New Zealand or in Singapore . Mortgage loans also play an important role in other groups of institutes ( large banks , private banks , savings banks , cooperative banks ) and life insurance companies .
conditions
Before concluding the loan agreement, the lending institution examines the lending documents submitted by the customer in order to examine the legal and economic requirements of the loan object . The most important result of the collateral assessment is the determination of the lending value , on the basis of which the lending limit determines the loan amount. Important payment requirement is the previous registration of the mortgagee ( mortgage or mortgage ) on the property serving as security. Nowadays, land charges are largely used as mortgages (over 90 percent of all newly granted loans). If a payment is to be made before the real estate lien has been entered, a certificate of rank can bridge the more or less long period up to entry in the land register. A typical type of repayment for a mortgage loan is the annuity loan . B. with a repayment portion of 1% pa plus saved interest leads to a term of around 28 to 40 years, depending on the interest rate.
Requirements for the object to be lent
The Capital Adequacy Ordinance (English abbreviation CRR) sets the following regulatory requirements for the object to be lent and the mortgage:
Lending object:
- Prompt usability (Art. 208 Para. 2c CRR)
- Appropriate non-life insurance (Art. 208 (5) CRR)
- Estimation by an independent expert (Art. 229 (1) CRR)
- To be monitored annually (commercial real estate) or every three years (residential real estate) by the lending bank (Art. 208 CRR).
Mortgage lien:
- Legal enforceability of liens in all relevant legal systems (Art. 208 Para. 2a CRR)
- The real estate lien must meet all legal requirements (Art. 208 Para. 2b CRR).
Residential properties that meet these requirements and are used or rented by the owner themselves receive a risk weighting of 35% of the risk-weighted credit (Art. 125 No. 1a CRR) for the risk position in the standardized approach , whereby the value of the residential property does not have a significantly positive credit rating of the borrower may correlate (Art. 125 No. 2a CRR). This includes by the borrower-occupied industrial lands whose values depend very much on the income that he by the particular use of the commercial property obtained (z. B. for factory buildings). According to Art. 126 No. 1a CRR, commercial real estate is assigned a risk weight of 50%. In the case of commercial real estate, the third-party usability of the loan object is important. Since the loans therefore do not have to be fully backed by the financing bank's own funds , the borrower can benefit from lower credit margins , especially with real estate loans .
Advantages and Disadvantages of Mortgage Loans
In contrast to blank loans such as installment loans , the lender of a mortgage loan has a property available as security in the event of a performance failure. If the borrower its obligations under the loan agreement no longer to the lender after due credit dismissal by utilization of the mortgage-backed property (for example, through foreclosure or receivership pay off) the mortgage loans from the exploitation revenues. This increased security for the lender usually leads to more favorable loan terms for the borrower than for unsecured loans.
Real estate financing through the registration of a mortgage has a disadvantageous effect , because this triggers notary and court costs. In addition, interest and principal payments burden the borrower's income. A later sale of the property is hardly made more difficult by an existing mortgage. This does not represent an obstacle to the sale, because the value date or use (of the remaining loans) is taken into account by offsetting against the purchase price and a mortgage can then be deleted as soon as the bank has received a repayment of the purchase price or a replacement security. A fixed interest rate that still exists can have a disadvantageous effect on the sale if the sale takes place during the fixed interest period. In that case, a prepayment penalty may apply , which must be borne by the borrower.
Mortgage loan models
Fixed-rate mortgage: Loans with a fixed term and a fixed interest rate (usually 1–10 years). During this period, the mortgage loan can usually only be terminated against compensation. Since the mortgage rates on the fixed-rate mortgage do not change over the term of the mortgage, there are no risks associated with changes in market rates with this type of mortgage. Fixed-rate mortgages are usually rated as low-risk.
Variable mortgage: Variable mortgage loans have a variable interest rate that is determined by general capital market developments. Since the market interest rates for variable mortgage loans are usually lower than those for fixed-rate mortgages, the variable mortgage is usually cheaper for new contracts. However, the borrower bears the risk of an increase in interest rates, since rising interest rates are reflected directly in higher interest charges. Variable mortgages are particularly risky in times of rising or volatile interest rates.
Libor mortgage: Libor mortgages are characterized by variable interest rates and a fixed term (usually 6 months). Basically, the Libor mortgage is a fixed-rate mortgage with a short term. This type of loan has a risk that lies somewhere between a fixed-rate and a variable-rate mortgage. Falling mortgage rates can be taken advantage of. In order to minimize the risk of rising interest rates, additional products for interest rate hedging can be used.
In addition to the common fixed-rate mortgage, variable-rate mortgage and Libor mortgage models, there are also numerous other types of mortgage.