In today’s article, we will introduce you to the mechanism by which mortgage loans work, as well as what are the key aspects you should pay attention to when applying.
The amounts granted under this type of loans are usually large, which requires the repayment period to be of considerable duration. For this reason, it is particularly important to familiarize yourself in detail with the terms, specifics and features of mortgage loans, as well as to consider your options for smoothly covering monthly payments. This will help you make the best and most informed financial decision possible.
The first step in the mortgage application process is to research in detail the terms and conditions of the institution you have chosen to target. Under the Credit Institutions Act, in addition to banks, financial institutions entered in the public register under Article 3a of the same Act are entitled to grant this type of credit.
Once you have ensured that your chosen institution meets the legal requirements, you should also pay attention to some additional legal aspects set out in the Consumer Real Estate Lending Act (CRILA).
Effective from 2016. The CCNIP Act aims at introducing protective rules for consumers of credit services and products. Unfortunately, not every user has the time or knowledge to identify the essential elements of the law. Therefore, in today’s article we will summarize the most important features, namely:
Who is covered by the law?
- For the purposes of the CCNIP, a mortgage loan is a loan to a consumer secured by a mortgage or other comparable security over immovable property, as is a loan the purpose of which is to acquire or retain a real right in immovable property;
- A consumer, on the other hand, may be any natural person who, when concluding a credit agreement for real estate, acts outside the scope of his trade, business or profession.
What should the mortgage loan agreement contain?
Borrowers are usually interested in the amount that can be lent to them, at what interest rate, and what the loan repayment will be. However, you should not forget that there are other important aspects that you should pay attention to, such as the lending institution providing you with a draft contract to read in advance.
It is important to note here that from the moment you receive the draft contract you have 14 days within which to make an informed decision as to whether you wish to enter into the contract or not. It is this legal option that saves you a number of risks and hassles that could arise in the loan approval process.
To ensure that your mortgage loan agreement meets the requirements of the CCLRA, you should look to see if all of the required details are present. Some of the more important ones are:
- Total credit amount;
- Repayment term;
- Interest rate – fixed or variable, with a description of how the variable rate is formed;
- Annual Percentage Rate (APR) detailing all costs. The annual percentage rate is one of the most important indicators for any loan product, as it will give you an idea of its “final cost” and how much it will cost you to service it over the whole period.
- Repayment plan and repayment methods;
- Total amount due from the user;
- Early repayment costs.
Once you have ensured that your loan agreement contains all the required components, it is important to pay attention to the fees and commissions that the institution is entitled to charge. Under the FCRA, the institution may not require you to pay fees and commissions for actions related to the disbursement and management of the loan, and may not charge more than once a fee and/or commission for the same action.
Next, it is important to be aware of the consequences should you decide to repay your loan early. Under the provisions of the CCNIP Act, upon early repayment of the loan agreement, the consumer shall pay a fee of up to one per cent of the loan amount repaid early when the loan is repaid before 12 monthly repayment instalments have been paid since the loan was drawn down. After this period, the consumer does not owe an early repayment fee.
Last but not least, you should also be informed about what happens if you are late with your monthly payment. In these cases, you will be charged interest for late payment, which may not exceed the statutory interest rate for late payment set by the BNB in accordance with the Decree of the Council of Ministers.
We hope that with this article we have been able to shed some more light on the mortgage application process and answer some of the most frequently asked questions. Other useful articles and information on lending can be found at our blog .