Mortgage Loans
A mortgage is a contract by which the bank, grants a loan to a borrower in order to finance the purchase, construction, or renovation of a house or an apartment, or the acquisition of land. In exchange for the funds advanced, the borrower must provide their property as collateral, which the lender may use to recover the loan if the borrower fails to repay.
The Borrowing Capacity
Before concluding the credit agreement, the Law of 23 December 2016 on mortgage credits requires the bank to assess the borrower’s creditworthiness. This means the bank must verify the borrower’s ability to repay the loan. The assessment is based on information about the borrower’s financial situation, including:
- Income (salary, pensions, etc.)
- Expenses (rent, bills, other ongoing credits, etc.)
- Assets (money, real estate, etc.)
- Debts
The Cost of a Mortgage
Taking out a mortgage involves costs beyond the principal amount borrowed. In addition to the loan itself, there are various charges that determine the total amount the borrower will need to repay. The main costs include:
- Commissions
- Mortgage credit interest
- Notary fees
- Insurance
Key Information to Assess and Compare Offers
Before signing the credit agreement, the bank must provide the borrower with detailed information about how the credit works. This information is provided through a document called the European Standardised Information Sheet (ESIS).
The ESIS contains information about:
- The duration of the credit
- The total cost of the credit
- The interest rate
- How the borrower will repay the money (e.g., monthly instalments)
- Conditions for early repayment
- The reflection period
- Consequences of non-payment
Type of Interest Rate
Mortgage credit agreements can be concluded with a fixed interest rate or a variable interest rate:
- Fixed interest rate: The interest rate remains the same for a specific period. This means that the repayment amounts (monthly, quarterly, etc.) do not change during this fixed-rate period. The fixed-rate period can be shorter than the total duration of the contract. Once this period ends, the bank and the borrower will agree on a new rate and a new repayment plan for the remaining amount.
- Variable interest rate: The interest rate can increase or decrease during the term of the contract. This means that the repayment amounts can also change. The borrower will pay more if the rate increases and less if it decreases.
Reflection Period
The borrower should take time to carefully consider and compare offers. There is a reflection period of 14 calendar days, during which the conditions of the offer remain binding on the creditor.
I Want to Repay My Loan Before the End of the Original Mortgage Contract. Is This Possible?
The borrower can repay all or part of the credit before the end of the contract. This is called early repayment. The borrower must first inform the bank in writing. If the loan has a fixed interest rate and the borrower repays it early, the bank may charge an early repayment fee, as early repayment could cause costs to the bank.
