1 / Credit

Buying a house or apartment is a costly business.
Most buyers will have to finance both the purchase price and associated costs by asking their bank for a loan.

If that is your case, you will enter into a contract with the bank of your choice. That contract must specify the amount the bank is lending you, the period within which the loan has to be repaid, the rate of interest that will be charged – in short all the terms and conditions of repayment.

There are many possible options.

The bank will normally require certain assurances to protect itself from the risk of the amount borrowed not being repaid:

• Mortgage: this is the right that you grant the bank to sell your property in order to recoup its money if you default on your monthly repayments
• Surety: the bank will require a third person to stand surety, especially if you do not have sufficient income.
• Life insurance: the insurance company will pay the bank a specific lump sum in the event of your death
• Allotment of wages: the bank can have part of your salary attached by your employer.
• Joint and several liability of debtors stipulated in the mortgage deed: the bank can recover the debt from any debtor if you default on your payments.

This type of transaction also generates costs, chiefly related to the amount you borrow. These include: the Notary’s fees, the engrossment fee, processing fees, registration fees of 1% of the amount borrowed and ancillary expenses, a deed enrolment fee equivalent to 0.30% of the amount borrowed and ancillary expenses, and the mortgage registrar’s stipend.

2/ Mortgage authorization

A mortgage authorization is effectively a promise given to the bank to mortgage one’s property.

Where a bank grants a mortgage loan to purchase a property, the arrangement fees are often quite high. Why so? When a bank grants a loan, it requires a mortgage on the property to be purchased as security.

However, for customers who are not “high risk” or are known to it, the bank may decide to settle for a mortgage authorization. Here, the debtor only makes the bank a promise to mortgage his property. While this has the advantage of being cheaper (saving a 1.3% levy on the amount borrowed) than a mortgage loan – because no mortgage is created – it also has disadvantages for both the bank and borrowers.

The big drawback for the debtor is that bank can at any time decide to take out a mortgage on the property without the debtor’s consent if he defaults on his repayments. Both the mortgage loan and the mortgage authorization must be evidenced in a notarial deed, which is usually signed immediately before the purchase deed.

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