Today it is one of the most demanded services in the lending market. Thousands of citizens know firsthand what a loan is.
Many banks today provide a service for issuing funds secured by real estate. This is a mortgage. How it works should be known to every bank client who plans to use credit services.
Mortgage credit lending
The essence of the concept
The mortgage is a service of providing a borrower with credit funds for the purchase of certain goods. Which is secured by the subject of a loan or other property.
A mortgage loan today is the only opportunity for thousands of families to move into their own homes. Citizens’ income does not allow saving large sums. And many have to apply to financial institutions for borrowed funds.
“Mortgage” is a word that is equated with mortgage lending. However, considering this word as a financial term, we can give it such a definition. It is a pledge that is transferred as property to the lender in case of violation by the borrower of debt obligations.
The pledge is a guarantee to protect the financial interests of the lender. Most often, the subject of the agreement itself serves as a pledge. While the ownership of it remains with the bank until the full settlement of the loan contract.
The main aspects of mortgages
The most common subject of a contract in real estate. But a mortgage loan involves the acquisition of not only real estate. But also vehicles, tuition fees, the purchase of expensive luxury items, etc.
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The mortgage agreement presupposes the presence of a pledge in the form of the client’s real estate. The client can purchase a house with credit funds, but it will also serve as collateral for the repayment of the debt. Until the full settlement with the banking structure.
If the bank is ready to lend funds without real estate collateral. Then such an agreement will not carry the status of a mortgage.
Credit provision is a service offered by many financial institutions. But mortgage lending is the prerogative of banks with long experience and a strong financial structure.
Home mortgage lending is a long-term financial relationship. The period of the contract is concluded at least for five years. On average, the duration of debt repayment is 15–20 years. The maximum term of bank mortgage lending in Russia is 40 years, but in total, these loans take no more than 1%.
As with any type of lending, the most important issue here is the lending rate. Average – 12-15% per annum. The percentage that the bank will ask for a loan depends on two key factors. The repayment period and the amount of the loan.
If there are social programs in the region and their availability for a particular city. The interest rate can be reduced to 10-11%. The interest rate tends to change in the presence of fluctuations in the general economic situation. Inflation is a key factor in the growth of bank lending rates.
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Change in interest by the bank due to inflation
Classification of mortgage loans
Which type of mortgage is preferred depends on the end goal of the client. There are several key indicators that determine what types of mortgages are.
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Mortgage lending depending on the loan object:
Loan for the purchase of a house. Preference is given to new buildings, the liquidity of which does not raise doubts among the bank.
Loan for the purchase of an apartment. This type of mortgage has its own characteristics when buying a home in an apartment building under construction. Since the collateral is in the process of construction, the bank requires additional guarantees. So the client may face some difficulties. This factor is key when setting the lending interest rate. Therefore, it is more profitable to purchase apartments in new buildings. That is accredited in a particular bank.
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Loan for the purchase of a room in a communal apartment or hostel. Loan to buy out a share. Citizens often resort to it in an attempt to resolve controversial issues of inheritance.
A separate type of mortgage lending is a loan with social support. Its peculiarity is the participation of the state in the program of repayment of the debt to the creditor.
By the time of the final settlement of debt obligations. The bank’s client must not be more than 65 years old.
The program participant must justify the urgent need to buy a home on credit.
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Most often, there is a need for the first payment (advance) in the amount of 15–20% of the total value of the property.
The maximum settlement period for debt obligations with government participation is 30 years.
If you want to know about Regions Bank, check the regions routing number.
Bank mortgage lending can be classified in relation to the interest rate. It can be fixed or variable. The fixed-rate remains unchanged until the end of the contract. A variable interest rate tends to change under the influence of the economic environment. Typically, a floating interest rate is initially less than a fixed one. However, its movement is unpredictable.
Collateral in mortgage lending
The bank is interested in the liquidity of the collateral to protect its financial interests. The main criteria that the collateral must meet:
- An apartment building must be in good condition. The use of an emergency or pre-emergency dwelling as collateral is excluded.
- Housing must be equipped with all communications for normal everyday activities. If we are talking about private houses.
- Housing depreciation at the end of the loan agreement should not exceed 70%.
- The foundation of the mortgage house must be concrete. Walls and partitions should also be made of durable materials.
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Who is eligible for mortgage benefits?
employees of budgetary organizations;
- large families;
- poor families;
- young families.
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But it is not enough just to belong to one of these categories. To get real estate on a mortgage on preferential terms. You need to prove that the citizen needs to improve living conditions. The reasons for this may be:
- Living together with close relatives.
- Living in a communal apartment or rented apartment in the absence of personal living space.
- Living in unsuitable housing or lack of living space for each family member.
- The possibility of obtaining a preferential mortgage is influenced by a large number of factors.
In addition, the age of the borrower, marital status, number of children, duration of work in the public sector, region of residence are taken into account. Some regions offer additional benefits for mortgage lending through municipal or regional programs.
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