When contracting a home loan, the lending institution takes a risk in lending money to the borrower. This risk is all the greater in the context of a real estate loan because the sums are larger and the durations lengthened in comparison with other credits. To cover the risk of non-repayment, lenders require a guarantee. This guarantee can be in the form of a deposit or a mortgage.
What is a mortgage?
The mortgage is a conventional guarantee. It consists in putting in guarantee the real estate of the borrower. Thus, if the borrower does not pay his monthly payments, the lending institution can seize the property to sell it and repay the missing amounts. This remains an onerous operation since it requires the passage before a notary and the payment of the costs arising therefrom. In addition, registration fees are to be added as well as the land registration tax and real estate security contribution (formerly the salary of the mortgage registrar).
Most often the banking institution offers instead of the mortgage, the registration to the privilege of lender of deniers. It works in the same way as the mortgage but its cost is lower since the land registration tax and registration fees are not payable.
However, only be used for tangible goods. When it is property under construction, is not possible, the mortgage is preferred. Whether it’s a mortgage, going to a notary is mandatory.
The use of these guarantees, however, does not require the borrower to keep his property until the end of his credit. He is free to sell it whenever he wants. There are two possibilities for him: he repays his credit and asks for the release of the mortgage or he transfers his mortgage on another property in the event that he makes redemption of his old credit.
What is a deposit?
The surety can take 3 different forms: the surety company, the surety “mutual servant” and the surety of an individual (the latter is very little used in the context of mortgage loans).
The surety companies and the surety “mutual civil servant” consist of an organization that guarantees itself to the bank in the event of a payment incident. This organization agrees to pay instead of the borrower in case of default. And then it is the surety who deals with getting reimbursed by the borrower, either through monthly adjustments or by selling the property concerned. The bond, unlike the mortgage and requires an agreement from the surety agency.
The deposit does not force the passage in front of a notary, which reduces the costs. The costs are the bond fee and the contribution to the mutual fund. Knowing that in most specialized organizations, the borrower will recover a portion of the sums paid. In addition, if the property is sold before the end of the loan, there is no charge for the release (the act by which the mortgage is canceled).
The “mutual servant” guarantee is reserved for civil servants and has very low costs.
How to choose between the deposit or the mortgage?
The deposit remains the least expensive and the simplest guarantee in case of premature resale of the property. However, it remains conditioned on the acceptance of the borrower’s file by the specialized body.
The mortgage despite its high cost has the advantage of not being subject to any condition of acceptance. The mortgage will be preferred in the case of acquisition of new property.
Less expensive than the mortgage but more than the deposit remains the solution in case of refusal of the surety company. It is only intended for the acquisition of already existing goods.