Mortgage Agreement – What is it?
A mortgage contract is a document that has two sides: the borrower and the lender. It is prepared when the consumer of the loan plans to buy real estate or build a residential house.
Similarly to a loan agreement (e.g. cash loan), it consists of two parts: the first concerns general information on the purpose of obtaining the money obtained from the loan, the second describes the individual situation of the person applying for the financial liability. At this point, however, it is worth emphasizing that the mortgage contract differs in several respects from a regular loan agreement (up to.
What elements does the mortgage contract consist of?
Before you go to the bank to get a mortgage for the purchase of real estate, you should first get acquainted with the most important elements of the mortgage contract. In this way we will find out what information should be included in it, as well as which issues should be given special attention.
Borrower’s personal data
At the beginning of the mortgage contract, the borrower should enter his personal data correctly, i.e.
- first name and last name,
- PESEL number,
- registered address,
- ID number and series.
Determining the amount of the mortgage
The second element of the mortgage contract is information about the loan amount and repayment date. In the event that we decide to obtain a financial liability in a currency other than in PLN, this point should be carefully supplemented with content on this subject.
The purpose for which the mortgage will be allocated
In the case of a mortgage, the purpose of the money obtained from the lender will be the purchase of real estate (e.g. housing) or construction of a single-family house. Certainly this section of the contract is one of the most important in the mortgage contract.
Commission for granting a loan. An important point in the loan agreement
Another element of the contract concerns the commission that the bank imposes for granting a mortgage. It’s good to know that each lender sets the commission based on the following factors:
- the higher the sum of the financial liability, the lower the commission will be charged to the borrower,
- the ratio of the mortgage amount to the value of e.g. the flat being credited,
- creditworthiness of the applicant
Mortgage interest rate
The interest rate issue is one of the most important points in the mortgage contract. The bank calculates them according to the current margin, which does not have to be constant. If the person applying for a loan resigns from the offered additional banking products, the margin will increase. The interest rate is also subject to a changing interest rate.
Loan installments in the mortgage contract
Each borrower must also remember to agree with the lender on loan installments, the terms of which are later specified in the mortgage contract. Banks distinguish three types of loan installments: principal installment, interest installment and principal and interest installment. Depending on the individual situation of the borrower, the bank offers one of the installments listed above.
Mortgage Agreement – What to Look for?
The mortgage contract consists of many elements, each of them is important and you must be careful not to make any mistake while completing them. However, it is worth emphasizing that some points of the contract require special attention from the borrower. Therefore, below we present the characteristics of three extremely significant issues for the mortgage contract, which you must necessarily read.
Determining the form of payment of the mortgage
The form of payment of a mortgage depends on the individual situation of the borrower, as well as the purpose for which the money from the financial liability is to be allocated. The loan can be withdrawn by the bank in two ways:
- once – a form of mortgage payment that the bank uses when the borrower intends to buy a property with an unencumbered mortgage (e.g. an apartment).
- in tranches – a loan in this form is granted to persons who plan to build a house using the economic method. The bank pays each subsequent tranche of money from the loan based on the progress of construction work.
Credit payment terms in the mortgage agreement
One should know that the payment of the mortgage (i.e. the moment of completing the loan procedure) by the bank takes place only when the borrower meets all the conditions for launching the loan within a specified time. These conditions include:
- presentation of a notarial deed of purchase of real estate – the borrower, immediately after signing the real estate purchase contract in the presence of a notary public, should deliver it to the bank within a specified time or until the loan is disbursed.
- Confirmation of submitting the application to the court for entry of the mortgage in the land and mortgage register in favor of the bank together with confirmation of court fees. This is a necessary document that acts as collateral for the lender in the event of default.
- Demonstration of insurance of real estate against fire and other random accidents – the apartment can be insured in two ways: you can sign a contract with an insurer recommended by the bank or arrange insurance on your own with another insurance company.
- Documenting life insurance – this policy should be made available to the bank for reconsideration in each policy year.
- Presentation of a notarial deed with an entry to bring own funds for the purchase of real estate – it happens that borrowers finance a property not only with the money from the loan and partially pay it with their money. In this situation, the borrower should notify the bank.
- The borrower who wants to receive a financial liability from the bank must also submit a so-called instruction, i.e. a loan payment order. It should be prepared in writing and then presented to the lender.
Who does the money from the mortgage go to?
The mortgage contract should also include a provision regarding who the financial obligation from the lender will be paid to. People who can get money from a loan include:
- the person who sells the property, i.e. the seller or developer. Money from the mortgage goes to his bank account.
- borrower who wants to build a house using the business method. The bank will send loan installments to its bank account along with the progress of construction works.
- In a situation where the borrower decides to buy a property with a mortgage, the money from the loan goes to the bank account of another bank or bailiff for repayment.
Mortgage Agreement – template
In addition to familiarizing yourself with the most important elements of the mortgage contract, you should also familiarize yourself with the template for such a document. Where can you find him? On many websites dealing with credit and financial issues and on the websites of some banks. We guarantee that no one should have a major problem finding a mortgage contract online.
You can always use the help of a financial advisor who will clarify any doubts about your mortgage contract. In addition, we will be able to find out from such a person how much a loan costs, what a reverse mortgage is and how exactly the loan procedure is going.