Requesting a mortgage is one of the most important decisions that you will probably make in life, and that will affect your finances, or those of your family, for several years.
For this reason, many factors must be carefully evaluated before getting into debt, choosing the most convenient and most suitable financing for your needs . It is imperative that before signing a loan agreement you have all the information you need to make an accurate choice.
What does a mortgage contract entail?
The loan contract is an official document, a public document, which is entered into in the presence of a notary public , together with all the people involved. The finance company guarantees the payment of a certain sum of money for the purchase or renovation of a property.
On the other hand, you will undertake to repay the capital disbursed in the times and in the manner provided for in the contract. The contracts adopted by banks may have different characteristics, but they all have elements in common that do not change and which are fundamental for its validity .
What must a mortgage agreement contain?
For those who are not in the sector, a loan contract can often be difficult to understand, so it is important to examine it calmly, point by point, before signing it.
The first element that must be reported are the interested parties, therefore: the lender (the lender), the borrower (who receives the mortgage), the mortgage- giving party (the owners of the property granted as collateral for the mortgage) ) and finally any guarantors or guarantors.
The loan amount must be indicated in the object. The contract also specifies: the duration of the loan and the methods for repaying the capital disbursed . The amortization schedule is then shown, with the number of installments scheduled for repayment and the related deadlines.
Italian banks mostly use the so – called ‘French’ amortization plan , a system which provides that the installment is constant and initially composed of an interest portion much higher than the principal. Going forward with the repayment, the interest share decreases and the capital share grows. Remember that the interest rate can not exceed the usury limit, a defined threshold based on TEGM (Effective Rate Global Medium) and published on the website of the Bank of Good Finance in Italy.
what types of interest rates are there?
Also in the loan agreement , the percentage of the interest rate and the type of rate are defined: fixed , variable , variable with CAP (as well as any default interest ). It is important to pay special attention and do not hesitate to ask the bank for explanations on the method of calculating the interest rate , as this will mainly determine the cost of your financing.
Within the loan agreement, it is clearly necessary to specify all the expenses that the borrower has to bear, the methods for the early repayment of the loan are also defined, that is, the repayment of all the sums due before the due date and the further rights and duties of the customer.
How mortgages differ
Before taking out a mortgage , it is important to understand what it is all about. Let’s see together what are the characteristics and types of mortgages , which differ from each other by the rate and the methods of repayment .
There are the fixed rate: for the duration of the loan rate, and therefore the amount of rate remains constant. The fixed rate is equal to the sum of the spread plus the Eurirs (or Irs) index. A second type are variable rate mortgages, which depend on the Euribor index. The latter is a variable parameter. Therefore, during the repayment, its value could fluctuate downwards or upwards, causing a variation in the installment.
Mortgages are also variable rate mortgages, but have a maximum ceiling beyond which they cannot go. The mixed-rate mortgage when you can change the type of interest rate into fixed rate and vice versa, according to the terms of the contract.
Finally, we have balanced rate mortgages , when the rate is partly fixed and partly variable.
What factors other factors should I consider?
As we have already said, the mortgage is an important and long-term economic commitment, for this you must evaluate well not only the contract you are about to sign, but you must make more general assessments, also linked to your economic situation. The Bank of Good Finance in Italy lists a number of key issues to consider before applying for a mortgage.
As a first point, remember to determine if your income is sufficient to pay the installments. This seems like a fairly obvious consideration, but you must keep in mind that during the mortgage period unexpected events may occur that require important new releases (for example, medical or car expenses) or that decrease income, such as loss of work.
If for any reason you cannot always pay the mortgage installments promptly, contact the bank or finance company promptly to find a solution together, for example, renegotiating the installments or asking for a suspension.
In fact, it is essential to always be punctual with the payment of the installments, in order not to incur default interest or in the worst case the loss of ownership of the mortgaged property.
In any case, absolutely avoid contacting operators not registered in the registers provided for by law . In some cases, you can use public support funds, such as the usury prevention fund or the solidarity fund for the suspension of mortgages.
How to find the cheapest mortgage?
After you have assessed your situation, concretely, how can you find the most convenient financing, also according to your specific needs?
The first step is to get multiple quotes from different banks and then compare them, keeping in mind the factors we have talked about, such as the spread and the APR (gross annual percentage rate).
To compare the different solutions, and also to calculate the installment you will have to pay, online comparators such as Humbert Humbert are very helpful, who, after entering the required parameters, offer in a few seconds a list of banks and financial institutions with the relative estimates mortgage. This way you avoid going to all branches physically, gaining a lot of time.