One of the types of credit offered by banks and private creditors is mortgage. It is issued on a long-term basis (the repayment time depends on the bank or credit institution selected, as well as the borrower itself), and the maturity depends on the borrower’s ability to pay in monthly installments. Such loans usually have low interest rates ranging from 0.5-2.5% .
In order to get a mortgage loan, you need a pledge – private real estate, land.
With this long-term loan, the bank or private credit institution usually provides up to 90% of the required investment value. Such long-term credit services are typically used to purchase, build, repair or improve a home, as well as for other large purchases.
In order for such a loan to be granted, the bank or credit institution will first have to check the credit history of the individual – if the past credit is successfully settled or the current loan is combined with a mortgage, it should not be difficult to issue such a long-term loan.
A good credit history enables an individual to obtain better credit terms
Of course, each loan application is considered individually. However, it should be borne in mind that the main criterion for granting a mortgage is the regular income and stability of the individual, and an important aspect is the purpose of the loan – for which the loan will be used.
The lender will assess whether the borrower’s income is sufficient to meet the credit obligation. In the case of a mortgage loan, the lending institution examines not only the individual’s income but also the regular income of the other family, such as benefits, business income etc. If one person’s regular income is insufficient, it is possible to borrow with their spouse, children, parents. In such a situation, the lender assesses the combined income of both people; in the case of a mortgage, one becomes the borrower and the other is the guarantor or co-borrower.
Because a mortgage requires a lien on a property, it is registered in the Land Register, a public book that seeks to secure real estate rights. The mortgaged property acts as collateral to the bank for the person to repay the entire loan plus interest. Once the credit obligation has been settled, the pledge returns to its previous owner. Also, property that is purchased or repaired by means of credit is recorded in the Land Register throughout the repayment period and becomes the property of the borrower only when the entire amount of the loan has been repaid.
When choosing to take out a mortgage, the individual also has to take into account other expenses needed to apply for and obtain the loan, such as property valuation, registry and land registry fees, mortgage registration, notary services (if any), purchased property insurance (annual renewal required) ).
The mortgage interest rate consists of a fixed interest rate or a floating interest rate (interbank rate) plus an additional rate set by the bank. Additional rate determination depends on individuals’ income, stability, l īdzšinējās cooperation with a particular bank, n unnecessary to loan, mortgage and real estate market value.
The mortgage borrower, once his or her loan application has been approved
Has the option to choose between floating or fixed rate, as long as the bank or credit institution of their choice provides such a service. A fixed interest rate is usually applied for a longer or longer repayment period. The fixed interest rate is fixed, but as a result the bank always sets a slightly higher interest rate than the floating interest rate, thus hedging against rapid changes in the money market. The floating interest rate is composed of the interbank rate plus the bank’s additional rate; it is lower than the fixed rate, but fluctuates with the changes in the money market, which can also change the amount of the monthly payment.
The customer is also offered a choice of payment schedule – either a descending or an equal payment schedule .
- Choosing a descending payment schedule initially pays a higher amount, including interest, but decreases over time – the monthly payment at the end of the repayment period is much lower than at the beginning. This payment schedule pays less interest throughout the term.
- By choosing the same or annuity payment schedule , the person pays the same monthly payment for the entire loan repayment period. However, this payment schedule is affected by interest rate changes – the payment may change every few months or less frequently. It all depends on how long the person has chosen to fix the interest rate.
When choosing a longer repayment period, an individual has to bear in mind that although the monthly payments will be lower, the bank will still receive more money in interest.
However, there is always the possibility of paying off some or all of the loan faster. If necessary, a credit holiday service is available during the repayment period – for a specific period of time agreed between the individual and the lender, it is only possible to pay interest and the principal to be repaid at the end of that period.
If the borrower has not breached any material terms of the mortgage agreement
Such as a delay of more than 60 days, or uses the loan for another purpose, the individual is protected by the Consumer Rights Protection Act . This stipulates that the issuer of the credit ( unless the individual has breached the terms of the agreement ) may not request a faster loan repayment, request additional credit collateral, or re-evaluate the collateral. The mortgage borrower has the right to request an extension or change of currency, and the lender has no right to charge extra for these changes. If an individual commits a material breach of a mortgage agreement, the lender is entitled to use the pledged property to secure the repayment of the loan.
When choosing to take out a mortgage, an individual must consider that it will not have a significant impact on their daily routine. It is recommended that your monthly mortgage payment should not exceed 40% of your monthly income .