The term “mortgage” came from the Greek language and in translation means a pledge. If we talk about mortgages, in relation to real estate, then we are talking primarily about the loan, which is issued on the security of real estate. If the loan is not returned, the bank sells the collateral and returns its money.
Positive aspects of the mortgage
If you have a goal – the purchase of housing, then naturally you need money for this. When you do not have enough money – you need to take a loan. Turning to the bank for money, you can get an offer of both mortgage lending and non-mortgage lending. In case of real estate mortgage, an apartment is immediately issued as the property of the person who acquires it. Even if the settlement is not made completely, the bank cannot take this property from the borrower.
When buying an apartment on credit, you can get additional tax benefits. Benefits are paid to the borrower for the fact that the loan is spent on the purchase or construction of housing and is a target loan.
Features of the mortgage
For the bank, however, it is necessary to guarantee that you will be able to return the loan amount and interest for using the loan. That is why, before the bank gives money, you have to go through the whole procedure and answer a lot of questions. After all, the bank is at risk. First of all, the creditor bank will be interested in what the borrower’s income is. The borrower will have to spend about half of your income on reducing the debt to the bank and paying monthly interest. And the more the salary on the day of receiving the loan, the greater the amount of the loan the borrower can get.
Another bank will definitely ask: “How much value do you want to buy an apartment, and how much day can you pay as a down payment?” And the less the borrower will be able to make money for the first installment, the greater the percentage payable on the mortgage.
Some banks that deal with mortgages, take into account only those incomes that are officially received. Other banks are ready to include all additional earnings in the total amount of your income. For example, if any property is rented out, because such income can sometimes exceed your principal. But in the event that at the time of the loan, the borrower is not working anywhere, he will not get the money from the bank, even if there are additional income. Officially issued at work you need to be in any case. But, if he works less than six months, then he, too, does not enter the scope of obtaining a mortgage loan.
In addition, many banks for mortgage require guarantors. If the borrower cannot repay the loan, the bank will collect it from the guarantors. And if nothing can be taken from them, an apartment will be sold through the court. And already at the expense of funds that will be received from this sale, the bank will cover its losses. The number of guarantors depends on the amount of the loan being taken. And the more income from guarantors, the greater the amount of a mortgage loan you can get.
The surest step from which to start is to visit a real estate firm, which acts as a kind of intermediary in the real estate market. By signing a contract with her, the client will receive an experienced and competent professional to help. Realtor will accompany the transaction and warn of all possible “undercurrents”. That realtor will be able to advise the right bank, which will be suitable for this particular client and tell you how to behave in order to get a loan for sure.
Very often, banks provide mortgage loans, taking into account the amount of funds received not only by the borrower, but also by the income of his entire family. In accordance with the “Family Code”, banks, when registering a mortgage, view the spouses as co-borrowers, or one of them may be the guarantor of the other. This is beneficial for those who take a loan, since the total income is always higher than the income of one of the spouses and, accordingly, the bank will be able to provide a larger loan amount. But, if at that moment, when you want to apply for a mortgage, one of the spouses will not have income, then the bank has the right to consider it dependent and deduct the minimum subsistence minimum per person per month from the income information provided. And already, based on the amount received, it will calculate the amount of a mortgage loan.
In addition to all of the above, the amount of mortgage loan provided by the bank may affect the work experience in the last place, the formation of the borrower, age and much more.
Mortgage loan risks
Mortgage in our country is not only profitable, but also risky. Moreover, this is a risky business, not only for those who borrow money, but also for those who are lenders. After all, the Russian legislation in matters relating to the mortgage is still imperfect and needs to be improved on certain legal issues. Inflation, changes in the exchange rate adds to the unpredictability of the economic situation in our country, even in the coming years, not to mention the next decades. To get a mortgage loan at a bank, you need to assess in advance your own strength and capabilities, and it is better to insure yourself against various types of risks.
The risks of the borrower. If market prices for housing suddenly drop, then, however strange it may sound, it is not always good (market risk). Including for you as a borrower. After all, you, buying an apartment with a mortgage, do not expect that the price of it will fall. In this case, you have to pay a lot for the resulting living space. The bank in this case is not satisfied either. If for any reason you find yourself unable to fulfill your mortgage obligations, the bank will not be able to cover the costs that it incurred in issuing a loan, since the price of the mortgaged property will also significantly decrease.
Another risk that awaits you when you make a mortgage, is associated with a change in the exchange rate. In the Russian mortgage market, all loans are given in dollar terms. You take out a loan in dollars and are required to return the same in dollars. However, very few people in our country receive a salary in this currency, and this is prohibited by the law of our country.
Independently calculate the possibility of this kind of risk is almost impossible, therefore, to protect your income is also quite difficult. In most such cases, it is recommended to contact this issue with a special brokerage firm. The risks of the lender. First of all, when applying for a mortgage for lenders, there is a risk of interest rate changes. And it is quite possible. This happens because the inflation rate can change constantly. For the one who is the lender, this risk is that the profitability of a mortgage loan is reduced. Firstly, the growth of inflation “eats” part of the profits that the lender expects to receive. Secondly, the risk of the bank is expressed in the fact that there is a probability of an early repayment of the mortgage loan by the borrower.
In the standard mortgage option, the interest paid on the loan received is fixed for the entire term. But this option is best if inflation is low. If during the whole period of crediting there is an increase in the level of inflation, then the lender may not return his money, which he has loaned to the borrower.
In this option, banks insure themselves against any risks that are associated with possible inflation. In this case, various loan options are applied, in which there are variable interest rates. But such rates are very difficult to calculate and do not always accurately reflect the level of existing inflation. It is for this reason that in order to attract borrowers for this type of loan, interest rates on it are set lower than on a loan with a fixed interest rate.
The risk of non-payment or late payment, the so-called credit risk is dangerous, of course, for the lender. After all, he can not get his income on the mortgage, if the borrower is insolvent.
Specialists calculate this risk at the earliest stages of mortgage processing, determining the terms of the loan and the size of the expected payments. Provide all the surprises in the future, you can use special services that check the creditworthiness of the person who wants to issue a mortgage loan in the bank. In order to reduce credit risk some restrictions are used. For example, a monthly payment should not exceed 30-40% of the monthly income of the borrower, even though a loan with a pledge is made. Although the pledge significantly reduces the risk that a bank will lose its money. But here there are pitfalls and currents. In our country there is a law according to which debtors cannot be evicted from an apartment, which is a pledge, if this living space is the only one with the borrower.
The risk of early repayment of a mortgage loan is also significant for the bank. In most cases, banks allow you to repay a loan ahead of schedule. Although some of them stipulate some terms in which you cannot repay the debt ahead of time. After all, early repayment entails the creditor obtaining a large amount of money that needs to be reinvested. The creditor cannot, after all, know when the early repayment will take place. And it, as a rule, occurs just at the moment of the lowest interest rate.
Property risks relate to a conditional risk group, that is, these are risks that are related to the collateral. For example, the risk of damage to property. If an apartment that was pledged, for example, suffers from a fire and is unfit for habitation, then the mortgage borrower’s obligations will not cease. In this case, the risks of damage to property are subject to insurance, and in the event of an insured event, the money is paid not by the borrower, but by the insurance company in which the latter is insured.
Calculation of financial possibilities for a mortgage loan
Firstly, the borrower must have a sufficient amount of own funds to make a down payment for the purchased housing. The amount of this contribution can be from 10 to 30% of the value of the apartment. If there is no such money, you can still get a mortgage loan, but the interest rate on it in this case will be 1-2 percentage points higher, and, therefore, you will have to rely on higher monthly loan payments.
Next, you should measure the size of future monthly payments with real income. And although the bank is also sure to inquire about the size of the borrower’s income, it is necessary to figure out whether it is possible to afford a normal life for those funds that will remain in disposal after paying a monthly mortgage payment. In addition, we all know that currently there are payments of wages “in the envelope”, that is, they are not officially registered anywhere. On the one hand, this is not bad for a borrower, because the real amount of his income is higher than indicated in the certificate of wages and he can afford to live comfortably with this money. On the other hand, the bank will not issue the desired amount if the borrower’s official income is deemed insufficient to pay off the mortgage loan. True, in this case there is a way out. The bank can give you a mortgage loan,
In addition, you should expect that you will have to pay for various procedures when you make a mortgage loan: a commission for the transfer of money, insurance payments, notary services and others.
Mortgage loan based on increased revenues
Mortgage loans are always long term. It is issued for several years or even decades. Therefore, in addition to financial opportunities, other life circumstances should be assessed, for example, to think about your work. And although it is impossible to foresee the future, all the more distant, it is important to properly assess your prospects here.
First, it is necessary to determine how stable the work is. How reliable is the enterprise or how stable is the business? After all, if the place of work is a potential “one-day firm”, then after a while the borrower may lose his job, livelihood, and the ability to pay off the mortgage loan, and, as a result, the newly acquired housing.
It is possible that the borrower expects a speedy increase in the career ladder, and in connection with this increase in their income. Or, for example, according to calculations, his business in a year will have to bring fabulous profits. But in business there are a lot of pitfalls and anything can happen, and promotion through the ranks may not take place for many reasons. You need to think about what will happen if dreams do not come true. After all, living alone with dreams and fantasies is at least unwise.
Mortgage loan for a family
Prospects for family life is also important to properly assess when deciding on a mortgage loan. After all, if a borrower lives with his spouse (spouse), then, spending almost all his salary on repaying a loan, he does not threaten the family budget, since and his other half earns something. But if God forbid marriage is threatened, then not only the division of property, but also the inability to pay off the mortgage loan with all the ensuing consequences.
Or, say, the borrower is waiting for the completion of the family. This fact must also be taken into account, because the child is a new family member, and the cost of it is even higher than on an adult household.
It may also be that the parents help the borrower financially, and he is counting on their help in the future, so he is not worried that he will not be able to repay the mortgage loan. But life circumstances may change, parents may, for example, retire and will no longer be able to help.
Here again, it is impossible to foresee everything for a few years ahead, but at least you need to really look at things.
Obvious ways to save when making a mortgage loan
When you make a package of documents, the borrower will have to pay for a number of additional services. To pay for these services, you can save a considerable amount. For example, consideration of an application for a mortgage loan in different banks is different: from 100 to 200 dollars. The loan issuance fee can also vary from 1 to 4%. Therefore, if possible, you need to choose a bank where these and other services are cheaper.
The interest rate on a mortgage loan in different banks may again be different and it is reasonable to choose a bank where this rate is lower in order to save on the repayment of interest on the loan. The same can be said about the services of a notary, independent appraisers, insurance services: their value in different institutions may be different. But these savings methods are obvious, so we’ll take a closer look at other, less obvious ways to save.
When searching for a suitable apartment, many use the services of realtors. These services, I must say, are not cheap, up to 4% of the value of the apartment. However, you yourself can search for suitable housing. To do this, however, you need to have enough free time, and also spend some effort, but it will pay off with interest. Since, as you know, a mortgage loan is issued for a long time, it makes sense to look for ways to reduce monthly payments, this can save a significant amount. And such ways exist.
The mechanism of repayment of a mortgage loan is such that first the interest on the loan is paid off, and only then the loan itself. Therefore, if from the first months to make as a monthly payment an amount greater than stipulated in the contract. The difference will not go towards the repayment of interest, but of the mortgage loan itself, which will lead to a decrease in the amount of the principal debt, and, consequently, interest on it. The interest rate depends on how much the down payment will be and whether the down payment will take place at all. Consequently, the larger the amount you make as a down payment, the more you will save on monthly payments.
The term for which the loan is issued also plays an important role. The longer the term, the higher the rate. Therefore, it is necessary to weigh everything carefully. You should not strive for a maximum period. After all, if you take, for example, a loan for 10 years, then the monthly payments will be, say, $ 1,000. If we take the same mortgage loan for 20 years, then the amount repaid monthly will be 800 USD. (figures are conditional, but generally show that the difference in the amount of payments will not be very significant). But after all 800 cu have to pay for twenty years, and 1000 – only ten. As a result, we find that in the case of a mortgage loan for 10 years, the total amount of payments will be 120,000 cu, and with a term of 20 years – 192,000 cu
The first thing you should pay attention to when choosing a bank in which a borrower will be credited is, of course, the interest rate on a mortgage loan. Of course, the lower it is, the better. This has already been mentioned in previous articles and we will not dwell on this in detail. However, there is one important point: the interest rate can be fixed or floating, that is, it can change over time. Do not delude yourself with this opportunity. After all, if, say, a floating interest rate is set in the range of 11 to 15%, the borrower subconsciously expects the lower level of interest, and the bank, of course, the upper one. And although the lower level of interest rates in this case often looks very attractive, such a transaction can be very risky.
An important factor when choosing a bank is the size of the initial payment. World practice is such that usually its size is 30% of the cost of housing. The same size is set by the Government of the Russian Federation. However, many banks in order to attract customers go to reduce the amount of the down payment. In this case, as a rule, the interest rate on the loan becomes higher. Therefore, choosing a bank, you should compare the size of the initial payment and the level of interest rates.
In addition, different banks have different amounts of additional expenses for mortgage loans (consideration of an application, real estate valuation, opening a loan account, etc.).
When choosing a mortgage bank, one should also keep in mind the fact that not every bank works with a mortgage in the primary real estate market. This is understandable: when investing money in a new building, the risks multiply. After all, a house can be built for a long time, it can even not be completed at all, for the period of construction the cost of apartments in it can change, and both in a larger and in a smaller direction. Therefore, the majority of domestic banks prefer to work in the secondary real estate market, so reliable.
When choosing a mortgage bank, it is necessary to ask whether such an operation is possible in the future, or at least whether early repayment of the loan is possible. If there is a moratorium on early repayment, then for how long it is valid. The period for which the bank is ready to issue a mortgage loan is also an important factor. Not many domestic banks will agree to issue a mortgage loan for more than 20 years: the times of change and general instability affected. Therefore, such long-term financial investments in our country are generally unpopular. The maximum period you can really count on is 27 years. But most often the period for which a mortgage loan is granted is from 10 to 15 years. But if we are talking about deadlines, it is worth mentioning that, making a choice between different mortgage banks, It is also necessary to pay attention to the term of consideration of an application for a loan. It can be from 1 day to 1 month.
Mortgage loan maturity
Repayment of a mortgage loan can occur in equal parts throughout the entire period of payment (annuity loan), and diminishing over time (differential loan). In the case of a differentiated loan, the first payment on it (not to be confused with the down payment) will be the largest. Then every month the amount of repayment of the mortgage loan will be less. If the borrower is able to pay monthly the amount that he paid in the first month according to his financial capabilities, then we can safely pay this amount all the time, despite the fact that we are obliged to pay less. At the same time, the maturity of the mortgage loan will be reduced. In addition, the total amount of payments will decrease due to the fact that not only the interest on the mortgage loan will be repaid, but also part of the principal debt. Of course
In general, the practice is such that banks, as a rule, oppose, because in this case, by losing interest, they lose part of their profits. But, nevertheless, recent studies show that early repayment of mortgage loans in Russia are widespread.
Usually when you make a mortgage loan, the borrower gets a loan payment schedule. In different banks, the attitude towards meeting the repayment terms may be different, but it is unlikely that someone will like it if the terms of payments are systematically violated. Following the violation of the maturity of the mortgage loan may be followed by penalties. Therefore, it is important to always remember these deadlines and strictly observe them. Moreover, in order not to be in an unpleasant situation, one should not forget that late in the evening or on weekends the bank’s cash desk may not work. In order to avoid such incidents, it makes sense to conclude an agreement with the employer about withholding the amount of the monthly payment from the salary and transferring it to the lending bank by bank transfer, of course, if this is possible.
In addition to your own income, other sources can be attracted to pay off a mortgage loan, for example, such as a tax deduction. Its essence is that the income of a citizen of Russia may be exempt from income tax in the amount directed to the construction or purchase of finished housing. The amount of tax deduction can be very tangible.
To obtain a tax, you must submit to the tax inspectorate the relevant documents (contract for the sale and purchase of residential premises, receipts for payments to repay the loan, etc.), after which the amount of income tax overpaid in the past calendar year will be returned to the borrower. Well and, of course, tax deductions are relevant only for citizens who receive a “white” salary, as the recipients of the “gray” salary do not pay taxes anyway.
Maternity capital – an alternative source of mortgage repayment
As is known, since January 1, 2007, the law on maternal capital is in force in Russia. According to this law, a woman who gave birth or adopted a second and subsequent child after January 1, 2007 receives maternity capital in the amount of 250,000 rubles. In subsequent years, this amount will be adjusted for inflation. So, this very maternity capital can be used in whole or in part to pay off a mortgage loan. True, it will be possible to take advantage of this opportunity only after January 1, 2010, since the law lays down the rule that the use of maternity capital is possible only after the child reaches 3 years of age. But this method of repayment of a mortgage loan should not be written off.