The Mortgage: What It Can Do, What It Is Good For
Does a mortgage mean that your house doesn't really belong to you? We clarify.
What is a mortgage?
In short, a mortgage is a credit security. In legal language, this sounds like this: A mortgage is a real estate lien always registered in the land register, which serves as credit security to secure a claim or credit and weighs on land or property-like rights. Property-like rights are clearly defined. They include:
- Condominium ownership
- Partial ownership
- Ground rent law
- Mine property
- Ship property
Ground rent law is the only area that is not immediately clear. The term means the right to be allowed to build a building on a property, for example to build a house on the property of the parents.
In order to obtain a mortgage from a bank, the legislator has prescribed a particularly accurate creditworthiness check for credit institutions. This also takes into account the degree of debt service coverage, a business indicator that expresses to what extent debtors are able to pay interest and repayment.
In the case of the former, a mortgage letter is issued by the land registry. The bank receives this letter and can thus assert its claims against the property. The book mortgage only uses the entry in the land register and thus excludes a mortgage letter.
What do I need a mortgage for?
A mortgage is usually taken out when someone needs a large loan and has little equity capital. It serves the bank or another credit institution as collateral for the amount provided. Mortgages can be taken out on both residential and commercial real estate. The so-called mortgage lending value is important here.
This term refers to the value of a property that the bank believes results in the long term from the sale at any time. Therefore, the maximum amount of a mortgage can be lower than the current estimate of a property if the bank expects prices to fall. It is usually between 60 and 70 percent of the estimate.
A mortgage is usually not earmarked, so the credit on it can be used for all kinds of things. It does not necessarily have to flow into a property, but can also be used for major renovations.
What is the advantage of a mortgage?
New York DSCR Mortgage Loans have the advantage over normal loans that mortgage interest rates are lower than those of a normal loan, since the bank holds collateral in its hands with the mortgage. In addition, a mortgage can usually be repaid early and the term is potentially shorter. Mortgages are often used for construction financing.
These significantly better conditions compared to a conventional loan make the mortgage a good choice, especially for large investments such as the purchase of a property, a core renovation or a comprehensive energy modernization.
What is the disadvantage of a mortgage?
In most cases, a mortgage is tied to a certain loan amount, which has been determined in advance. If the need for the credit line now changes due to unforeseeable influences, it is difficult or impossible to adapt a mortgage to it. The only option would remain to take out a second mortgage on the property. This again causes costs.
In addition, there are not insignificant costs in the run-up to a mortgage. For example, an appraiser must be paid who estimates the value of the property. In addition, there are the costs for the notary who draws up the mortgage contract. And finally, fees also apply for the registration of the mortgage in the land register.
The mortgage: A cheap loan within the right framework
The advantages of a mortgage are obvious. Because the bank receives credit security in the form of a mortgage, the interest on a mortgage is usually lower than on a normal loan. In addition, in most cases, early repayment of the mortgage is possible. There are high costs and fees for taking out a mortgage, and the loan amount is often inflexible.
If there is an unexpected need for more money, a mortgage cannot be expanded and a second one often has to be taken out - again with high costs. Banks usually do not accept mortgages without equity. In addition, credit institutions check potential customers by default: As with a normal loan, certain conditions must be met, such as regular income and good creditworthiness.