However, it is necessary to understand well how they work so that this debt does not become a financial problem.
The importance of knowing the mortgage expenses:
There are different types of mortgage expenses that you must pay when requesting this type of loan from a bank, or any bank entity; such as administrative expenses, appraisal, handling, and bank commissions.
So you must understand what each of these is about, as they are key when calculating the cost of your mortgage, or establishing the percentage that corresponds to you to pay.
Without a doubt, when you understand how these expenses work, you will avoid misunderstandings, non-payment, or extra charges that you do not understand why you should pay.
Are you qualified to apply for a mortgage?
Before going to a bank to apply for a mortgage, the first thing you should establish is if you have the right profile to apply for a mortgage loan, because the truth is that, depending on your credit profile, you may or may not be eligible to opt for this loan.
To help you make this decision, let’s first start by defining mortgages so that you understand how they work, what you should take into account, and a series of practical recommendations to keep these financial expenses under control.
What is a mortgage?
Before delving into mortgage expenses, it is necessary to define what a loan of this nature consists of.
A mortgage represents an agreement between an individual and a lender, and in most cases, the latter is nothing more than a bank.
It consists of a long-term contract in which a person is borrowed money to buy a house.
However, it can also be used as collateral. That is, the debtor stipulates that his property will serve as collateral if he is unable to pay his debt to the individual who made the loan (the creditor).
In that case, the creditor will have every right to request the sale of the property to recover his money, and therefore, the mortgage is said to function as a debt instrument.
Below we mention the two types of mortgages and their differences.
They are those that are constituted by the spontaneous will of the debtor, although they are also used to comply with obligations imposed by the owner of the assets that are decided to be mortgaged.
They are those that are constituted to comply with certain legal provisions. People use them to ensure the assets they manage, and even to guarantee the credits of certain creditors.
Who issues a mortgage?
In general, loans are granted by a bank, so the contract must be signed by someone who has legal representation.
In the same way, whoever receives the loan and who grants the guarantee, -better known as the owner of the property-, is also involved in this legal requirement.
Main expenses of formalizing a mortgage:
These expenses cover the management procedures, notary, as well as appraisal, and taxes that you agree to pay at the time of signing the mortgage contract.
Below we will list the most common mortgage expenses that you must assume when you apply for this type of loan.
1. Opening Commission:
This commission is part of the price of the mortgage, which means that the bank does not charge it to the client as a service provider.
In any case, the bank is obliged to inform the borrower about the collection of said opening commission, with which the credit or loan application process is formally started.
This mortgage expense does not usually exceed 2% so its amount will be proportional to the entire loan. Even when you think it is a low percentage, for example, if the mortgage is $200,000, the opening commission (2% ) would be $4,000. So you must keep it in mind.
However, it should be noted that this percentage varies depending on the country, or the banking regulations that apply in such a case.
2. Agency expenses:
It should be noted that these mortgage expenses will only have to be paid if the intervention has been imposed by the bank. In other words, not all banks charge these fees, however, it would be good to check with your bank or bank, if they have any administration charges.
3. Notary fees:
The mortgage expenses that correspond to the notarial fees are divided between the client and the bank since the so-called “notarial intervention” is in the interest of both parties.
These are calculated based on the number of pages that the mortgage deed has, that is, the more pages it has, the greater the amount to be paid. These mortgage expenses must be distributed equally, although the good news is that the amount is not high.
Now, many people do not take these expenses into account and are not financially prepared to assume them, so they have to resort to credit cards or other funds to cover this unforeseen expense.
4. Housing appraisal expenses:
These mortgage expenses are essential for the bank to grant the financing to the client.
They are assumed by the person requesting the loan since it is the person who is interested in carrying out the appraisal to obtain the mortgage. It should be noted that the client can choose the appraiser of her preference, and the bank is obliged to accept this decision without problems.
Mortgage expenses you can avoid:
Although most of the mortgage expenses are indeed borne by the person who receives the loan, it is also important to note that others are assumed by the bank in most cases, and for this reason, you will not have to pay out of pocket. your pocket
5. Registration fees:
This is one of the mortgage expenses that you can avoid in most cases. This is because the mortgage guarantee is registered in favor of the credit institution (the lending bank), and consequently, it is the latter who is responsible for bearing these expenses.
6. Documented legal acts:
They are very large taxes calculated based on the total bill. Indeed, in some countries, they can be two-thirds of it and are related to the cost of setting up the mortgage.
Documented legal acts must be paid by the bank, which in theory acts as the taxpayer of the tax.
7. Copies of the notarial deed:
Notary fees are other mortgage expenses assumed by the bank in the following cases:
- When the borrower requests a modification of the mortgage deed.
- When you decide to cancel the mortgage.
How a mortgage is calculated
Knowing how the amortization fee of a mortgage is calculated is vital to keep the accounts clear at all times, and thus avoid misunderstandings during this important process.
There are three major amortization systems: French, American, and German, but today we will focus on the first because it is the most popular worldwide.
What does the French system consist of?
In the French model, the payment installments are fixed, except for some cases in which the interest rate is variable.
In addition, most of the interest that accrues on the loan must be paid to the lender during the first installments. And the amount to be paid for this concept is calculated based on two variables: the capital pending amortization and the interest rate applied.
In simpler words: if at the beginning of the loan you owe a very high amount, then the interest to be paid during each installment maturity will be higher.
This system is based on a formula to calculate the amortization fee, and includes three major factors:
- the borrowed capital,
- The duration of the loan and,
- The interest rate.
This is the step-by-step of the French system:
Understanding this formula is necessary if you are thinking of making real estate investments. Therefore, we will approach the step-by-step of this calculation that will help you understand the subject more easily:
Definition of the amount to be financed:
Banks, which act as the main lenders, do not usually grant mortgage loans for more than 80% of the property’s purchase value.
Therefore, the client is obliged to contribute at least 20% of the value, plus all the corresponding mortgage expenses, such as notary fees, agency fees, etc.
For example, if you want to buy an apartment valued at $200,000, the bank will lend you a maximum of $160,000. This means that the remaining $40,000 must be contributed in advance.
Calculation of the amortization period:
Currently, people who apply for this type of loan have between 15 and 30 years to finalize the repayment of the mortgage loan.
An important point that you should know is that the longer the repayment term of the mortgage loan, the lower the monthly amortization fee that you will have to pay.
However, the interest accrued by the loan will be higher, since the payment time will be longer.
Having these clear concepts will allow you to understand how to get out of debt without problems, and will prevent your loans from becoming a big headache in the future.
Setting the interest rate:
To explain this point, it must be made clear that there are three types of interest:
- Fixed interest: It means that the monthly installment is to be paid and the interest percentage will not suffer variations. In other words, you will pay the same amount of money month after month, throughout the financing period.
- Variable interest: If the interest is variable, then inevitably the value of the amortization fee will not remain static, and will depend on different factors such as the interest rate in your country based on certain indicators, such as inflation.
- Mixed interest: It is usually widely used in European countries and refers to the fact that during the first years of the loan the interest will be fixed, and then it will become variable.
Definition of commissions:
Each financial institution establishes its banking commissions and these are usually considered expenses in most cases.
The opening commission, associated account, or amortization, are some of the most popular mortgage clauses, and believe it or not, they have an important weight when calculating the general expenses of the loan.
Recommendations for applying for a mortgage
Below we will give you some important tips to avoid making mistakes or problems when applying for a mortgage.
Keep it real:
Avoid over-indebtedness at all times to keep your finances balanced. Whether you apply for a loan online, or you are interested in requesting a mortgage loan, you need to keep your feet on the ground and stick strictly to what you can afford.
For example, if the house of your dreams costs $600,000, but you cannot afford such expenses, then the idea is that you invest in a property that fits your budget, instead of borrowing more money that you probably will not be able to return in time. the medium or long term.
Negotiate the mortgage conditions:
While it is true that the terms of the loan are stipulated by the bank, there are still some mortgage terms that you can negotiate to ease your burden a little.
The most common is known as ” dation in payment ” and consists of establishing the following agreement with the bank: that it can keep the property – in case you cannot cover the monthly installment in the future -, to pay off Debt.
Make a mortgage comparison:
Comparing mortgages before signing the official loan documents will allow you to define which payment conditions or facilities are best for you, and best of all, you can do this work online since there are already high-quality comparators.
Apply for a mortgage without problems:
Without a doubt, knowing the expenses related to mortgages will allow you to take this big step safely and firmly, and in this way, you will be able to buy the home of your dreams without any problem.
Just make sure you make the accounts clear before signing the mortgage contract so that negative scenarios do not arise that could hinder the entire process.