For those who need to apply for a mortgage

For those who need to apply for a mortgage

1. The clarity of the contract
2. The rate
3. Incidental expenses
4. Processing times
5. The late payment penalty rate. Clarity of the contract

It is also necessary to know

1. Payment methods
2. Tax deductibility
3. The amount of the mortgage
4. How to pay off a mortgage
5. Limitations on the right to sell
6. The additional collateral required by the bank

Focus on

1. The renegotiation
2. Unfair terms
3. Advisors and intermediaries

The clarity of the contract

Mortgage contracts are often difficult to understand. This is partly due to the need to use technical terms that cannot be replaced; however, the problem could be partially resolved through an effort to simplify the language, which would ensure clearer communication between banks and customers. It is advisable to obtain a copy of the contract in advance and, above all, of the “general terms and conditions” proposed by the bank.

 

If you have difficulty understanding the terms and the explanations provided by the bank representatives are unsatisfactory, you can contact either consumer protection organizations or a notary, who can provide the necessary clarifications even before the mortgage is signed. A lack of clarity in the contract may also indicate a poor-quality product, in which case it is advisable to seek out another lender.

The rate

It is generally the main or sole factor considered when evaluating a mortgage. However, it is important to examine other factors, listed below, before making a decision, as it is advisable to assess the overall impact that mortgage payments will have on the family budget. It is therefore necessary to understand the difference between the introductory rate—which is lower for the first few six-month periods—and the standard rate, as well as to evaluate the difference between a fixed rate and an indexed rate. For example, a low introductory rate may be tempting but could lead to the unpleasant surprise of very high standard rates, while a fixed rate that is affordable today may become burdensome in a short time. Furthermore, when calculating the monthly payment, other expenses are added to the interest rate, and it is important to be aware of these in advance.

Incidental expenses

Here, you may encounter unpleasant surprises in terms of financial costs; it is therefore advisable to carefully review and compare mortgage fees, appraisal and processing fees, and insurance premiums—which are more or less mandatory—through which the bank protects itself against the risk of fire or explosion of the property or the death of the borrower. It is also advisable to inquire in advance about notary fees, which, for various reasons, can vary even for the same loan amount.

Processing times

When you’ve committed to buying a home by a certain deadline and have to pay a penalty to the seller for any delay, a lengthy mortgage approval process can end up costing you dearly. As a rule, 60 days are more than enough to secure a mortgage.

The late payment penalty rate. Clarity of the contract

Even though those applying for a mortgage do not expect to find themselves in a situation where they cannot make their payments on time, it is essential to carefully consider this possibility as well, to prevent unfavorable and unforeseen circumstances from triggering a dangerous chain reaction.

It is also necessary to know

Payment methods

Since a mortgage only becomes effective once the notaio registers notaio with the appropriate office—and this can only be done after the loan agreement has been signed—the bank often holds onto the loan amount until the paperwork is complete, which means you have to wait two or three weeks before you can access the borrowed funds. In the case of a real estate sale, the seller will consequently have to wait a few days to be paid.

 

You should check with the bank and the notaio when the funds will actually be available. To avoid this wait, some banks make the loan amount available immediately as pre-financing; in this case, it is advisable to verify the interest rates charged by the bank. As an alternative to pre-financing, you must reach an agreement in advance with the seller, who, if selling before receiving the full purchase price, must be adequately protected. It is notaio responsibility notaio and explain the various possible solutions to the parties.

Tax deductibility

The law provides for the tax deductibility of a portion of the interest expense and related ancillary charges paid on mortgage loans taken out for the purchase of real estate and/or for building renovation projects. This opportunity to reduce the tax burden should therefore be carefully considered.

The amount of the mortgage

A mortgage is the security that allows the bank to forcibly recover its loan when the borrower fails to pay. In addition to the principal debt (capital), the mortgage interest, late payment interest, and the costs associated with the auction sale of the home must be added. For this reason, the mortgage is registered for an amount much higher than the loan amount. This means that up to that amount, the value of the home is reserved for the bank, and any additional loan—which banks do not always grant—can only be requested based on the remaining value of the property.

How to pay off a mortgage

The mortgage is paid off with the final installment. The mortgage lien securing it, however, remains in effect until twenty years have passed since it was established—in practice, from the time the mortgage was granted. For mortgages with a term of less than twenty years, therefore, there is a period during which the mortgage lien remains in place even though it no longer serves any purpose. In these cases, it is not advisable to ask the bank to cancel the mortgage unless you need to sell the house. It is important to remember that canceling a mortgage always takes several months and that the cost is not insignificant (approximately €500 for a €160,000 mortgage).

Limitations on the right to sell

Some mortgage contracts stipulate that the borrower cannot sell the home before the mortgage is fully paid off, requiring the borrower to pay off the debt early and, if applicable, pay a penalty. Clauses of this kind should not be underestimated, as they can pose a serious obstacle if you wish to move. Not all banks impose such clauses: you can request that they be removed or switch banks. In any case, the prohibition on selling the home must be limited to a reasonable timeframe (for example, five years).

The additional collateral required by the bank

When granting a mortgage, the bank must assess not only the value of the home offered as collateral, but also the borrower’s ability to make the mortgage payments. For this reason, a third party (such as a parent acting on behalf of a child) is sometimes required to provide a guarantee. This banking practice is acceptable as long as the amount and duration of the guarantee are clearly defined. However, any request by the bank (though financial institutions more often follow this practice) for a power of attorney to sell the home in the event that the mortgage payments are not made should be rejected.

Limitations on the right to sell

Some mortgage contracts stipulate that the borrower cannot sell the home before the mortgage is fully paid off, requiring the borrower to pay off the debt early and, if applicable, pay a penalty. Clauses of this kind should not be underestimated, as they can pose a serious obstacle if you wish to move. Not all banks impose such clauses: you can request that they be removed or switch banks. In any case, the prohibition on selling the home must be limited to a reasonable timeframe (for example, five years).

Focus on

The renegotiation

Renegotiation can be considered a common practice, but it depends on the willingness of the parties involved (the bank and the borrower). Renegotiation may involve only the interest rate or the term, or it may entail closing the old loan and opening a new one, with the associated costs, which must be carefully weighed against the benefit derived from the reduction in interest payments.

Unfair terms

The unfair practices sometimes faced by consumers when taking out a mortgage to purchase a property—such as very onerous penalties for early repayment and restrictions on the ability to sell the mortgaged property by transferring the mortgage to a third party—can now be addressed thanks to the new regulations on unfair terms. It is precisely these unfair terms that have been one of the most problematic issues addressed by the Italian Banking Association and the consumer associations that are signatories to this Handbook, in redefining the proper balance of rights and obligations between the customer and the bank. The consumer must first and foremost insist that the contractual terms proposed by the bank are always understandable and communicated to them well in advance. If certain terms of the contract create an imbalance of rights and obligations to the detriment of the consumer, those terms may be automatically deemed invalid. Consumer protection associations may sue financial institutions that use unfair general contract terms and ask the court to prohibit their use.

Advisors and intermediaries

Applying for and obtaining a mortgage to buy a home is now within everyone’s reach. It is usually sufficient to contact a bank and provide the few documents it requests. Therefore, the substantial fees sometimes charged by “financial brokers” are not justified. Anyone applying for a mortgage who needs clarification can always turn to consumer associations and a notaio—an impartial professional chosen by the borrower—whose services, necessary for establishing the mortgage, represent a cost that can be best utilized to obtain all the necessary advice.