People usually think of mortgages as a loan used to buy a house. However, there are two types: legal mortgage and contractual mortgage. Although they may look the same, these two types of mortgages have very different implications. This blog will outline the differences between these two types of mortgages and make a case for which one might be more accurate for you.
What exactly is a mortgage?
We can answer this question by looking at the provisions of the Law on Obligations and Contracts (LLC). A mortgage is a legal way for a lender to sell real estate to a debtor, thereby securing payments.
Banking institutions prefer mortgage-backed loans because they have a lower chance of default. The mortgage as an encumbrance is entered under the lot of the property in the property register.
A mortgage loan is a type of loan specifically for the purchase of real estate. The property will be secured against the loan, meaning that if you default on the payments, the bank can repossess the house. A mortgage loan is a type of financial security used to purchase real estate. The debtor pledges his property as security for the agreement and it becomes his after he pays everything back with interest included in the repayment periods set by law or agreed upon between the two at the time of the original transaction.
We conclude that the mortgage secures a specific claim and through it the creditor can request the bailiff to sell the property at public sale. That way, they will be happy with whatever price the property sells for.
How is a mortgage established and how much will it cost us?
The mortgage will be entered in the Property Register. If it is a contractual mortgage, then the entry will be based on a contract that must be notarized, signed by the creditor and the debtor, as well as by a notary with an area of operation close to where the mortgaged property is located.
We can summarize the process of taking out a mortgage loan in two phases. The first phase is signing the mortgage contract in front of a notary public. The second stage is the registration of the mortgage in the Property Register. The mortgage is effective against third parties only after it is registered. The entry is valid for ten years from the date on which it was made. The first phase is the conclusion of a mortgage contract in front of a notary public. If a debtor defaults on his mortgage loan agreement, the bank that lends him the loan to purchase the property has the right to sell the property publicly.
As mentioned, a contractual mortgage is established through a notarial deed and is used as collateral for a loan or credit agreement. The notarial deed includes the following: the names, addresses and residences of both parties; what is provided as collateral; the amount of interest, if any, is agreed upon; as well as the maturity date and the secured claim. A mortgage is void if the identity of any party (creditor, owner, debtor) is unknown regarding the property subject to the mortgage or other secured claims at the time of the contract or application.
A common question is “How much does it cost to sign mortgage contracts?” Remember that when you buy or sell something, there will be fees and costs for the sale itself. And if you have a mortgage from a bank loan, you will have additional costs such as notary and registration fees for the mortgage contract.
The mortgage fee that we must pay to the notary when signing the mortgage contract is determined by Chapter II of the Tariff for notary fees under the Law on Notaries and Notarial Activities. The charges associated with this tariff are based on material interest, meaning that the more expensive the mortgaged property, the higher its mortgage rate will be.
A legal mortgage can be established through the purchase and sale of land and in case of division of property.
In this case, the buyer did not pay the entire sale price of the plot at the notarial sale. The buyer officially becomes the owner of the property after the notary signs the contract of sale. All parties involved must agree to this document for it to be finalised, at which point the purchasers are given full rights to use and enjoy the property.
The seller has only received partial compensation for the land, but can claim the rest of the payment to ensure he gets his full compensation. The same can be required from the prospective buyer in the notarial deed of purchase and sale, indicating a deadline in which the balance of the due price will be paid.
For the registration of the legal mortgage at the Registration Agency, a request for a notarial deed of purchase and sale is prepared, in which the registration of the plot of land on which the mortgage lies is requested, indicating the amount due, payment term and other relevant information.
A mortgage can also be arranged through a contract signed as a notarized agreement. The notarial deed for the mortgage loan shows the three names, residence and occupation of both the creditor and the debtor, as well as the plot of land on which the mortgage is established, an agreement on the date and amount of repayment (including interest, if any), or in the cases , when it is not monetary compensation – the value of what is mortgaged.
According to the Registration Agency, more than one mortgage can be registered on one land property. Therefore, each mortgage has an entry line.
The mortgage is recorded and deeded for ten years, but may be renewed at any time before the decade is up. If no renewal occurs, then the mortgage is void from the first year. In this case, there is a row from the new registration.
Which option is better – entering a legal or contractual mortgage?
If you’re wondering whether a fixed or variable rate mortgage would be better for you, read on. It can be difficult to differentiate between these types of mortgages because it depends on what you are using the loan for. Just because someone has lower initiation fees doesn’t mean they’re the best option for you. The structure of the loan is more important than the type of mortgage. The borrower should choose the most advantageous loan instead of worrying about which types of mortgages are better.
We need to make a thorough comparison to answer the question of which mortgage is more expensive: the legal one or the contractual one. Contractual mortgage is cheaper than other options if we only compare notary and state fees. Local taxes are often overlooked but must be paid when buying a property. A legal mortgage must be written when the loan is for the purchase of a property. Considering local taxes, there may not be much difference in terms of cost. However, mortgage costs are not small, so you should always be prepared for them. Calculating all fees in advance can avoid any nasty surprises down the road.
Differences between contractual and legal mortgage
It is essential that you understand the differences between the types of mortgages so that you can make an informed decision when taking out a mortgage.
- Formation of a mortgage
The notarial deed for the establishment of a contractual mortgage includes, in addition to data about the property, all the parameters of the loan. For example, establishing a legal mortgage requires that the method of purchase and payment with credit be specified in a notarized deed. In the application to the registration judge, all the parameters of the loan must be in accordance with what is indicated in the signed loan agreement.
- Signing and certifying a mortgage
The borrower, as well as all other persons invested in the transaction, sign the mortgage agreement. If the person who owns the mortgaged property is not the borrower, that person must also sign. Therefore, it is necessary for anyone in this position to know that they have to sign a contract called a mortgage deed.
- Entrance fees payable
In addition, there are variations in the fees payable – notary and state. You can plan them in advance. For example, the notary’s fee for a legal mortgage is less than usual. The notary will give you exact details of the fees due. Also tell him what other documents need to be notarized for the mortgage.
Legal and contractual mortgage – documents
Even if there is a registered legal or contractual mortgage, you still need to get all the documents for the property and present them to the bank together with your loan application. This way, you will be able to get more documents if the need arises quickly. After a bank lawyer reviews them, he will be able to give an opinion on what else is needed.
The required documents are: the most recent notarized document, all previous notarized documents, the most recent tax assessment that is unbound and a draft. There should be no discrepancies between these documents. Unfortunately, mistakes are often made – a discrepancy in the squares or the address is possible, as well as other errors. This should be detected early so that appropriate steps can be taken to remove them.
The National Revenue Agency must provide you with a debt free certificate valid for one month. You can request this certificate while your credit is being processed, so if there are any liabilities on the certificate, you will have plenty of time to correct the situation.