When buying real estate on credit, the bank generally requires a guarantee to protect itself in case of impossibility of repayment of the monthly payments.
Banks guard against the risk of insolvency of borrowers by taking collateral. If the borrower does not honor his repayments, this device will allow for example the lender to sell the real estate financed and recover the funds granted. What are the different possible guarantees?
The conventional mortgage, a tailor-made guarantee for your loan
Conventional mortgages are a very widespread guarantee, often used for loans to finance construction works or when renegotiating a loan.
With the conventional mortgage, the bank can seize the house and sell it
In the event of default by the borrower, the conventional mortgage allows the bank to seize the housing put in guarantee, to sell it and to recover the loaned funds. Unlike legal or forensic mortgages, this type of guarantee is the subject of an agreement between the lending institution and the borrower. More specifically, it is a contract signed between the debtor and the creditor, before a notary, specifying the nature of the real estate concerned by the guarantee, the amount of the sum guaranteed and the repayment period of the debt.
How to set up a conventional mortgage?
To set up a conventional mortgage, you must be the owner or usufructuary of the property concerned. Throughout the term of the mortgage, the borrower is required to keep his / her home. If he is married, he can not grant a mortgage on the family home without the consent of his spouse. In the event of non-repayment of the remaining monthly payments, the bank may order the seizure of the property and its forced sale by public auction. In this case, the creditor is remunerated primarily on the selling price. Once the home loan is repaid, he releases a mortgage, a formality that aims to release the property from the mortgage.
Conventional mortgage means the significant cost to the borrower
If the introduction of a conventional mortgage can favor the acceptance of a credit file, this guarantee has a cost. At the time of signing the mortgage, the borrower must pay the land registration tax amounting to 0.715% of the total guaranteed amount plus the registration fee for the land registration service. and notary fees. In the event of early repayment of the credit, additional release fees are payable as well as duties and taxes to the land registration service. The cost of a mortgage to secure a property purchased on credit varies between 1.5 and 2% of the borrowed capital. Thus, the conventional mortgage is a tailor-made guarantee, which adapts to the needs of the borrower.
The lien of lender of money to grant you a mortgage
The lien of money lender (PPD) is a guarantee that can be claimed by the bank for the granting of a mortgage.
With the privilege of money lender, the bank has priority over the guarantees related to housing
The lender privilege of money allows the lending bank to take precedence over the guarantees taken on the property. In other words, if the real estate is seized and sold, the lender with this privilege can claim compensation first.
How to set up the lender’s lien?
To be effective, the PPD must be the subject of a deed established and signed by a notary, be registered with the Conservation of mortgages within 2 months of the sale. The lender’s lien listing ranks on the date of sale, which means that it has priority over other collateral taken on the property.
This guarantee can only be used when the credit is intended to finance the purchase of an already built dwelling or land. It can not be used to guarantee the part of the loan devoted to the financing of construction or works, nor guarantee the financing of acquisition in the future state of completion.
The less money lender privilege than the mortgage
The cost of this guarantee is lower than that of a mortgage because the PPD is exempt from property tax. It does, however, generate a charge for release in the event of early repayment of the loan.
The main disadvantage of the moneylender privilege is that it does not fund the purchase of a new property or under construction. In addition, this guarantee can not be set up as part of a credit redemption and unlike the mortgage, it can be taken only once in the context of a mortgage.
Thus, the lien of the lender of money remains an interesting alternative, not to be discounted when studying your financing plan by the lending institution.
Bonding: commitment between the surety and the debtor to guarantee the repayment of a loan
The bond is a commitment made by a financial institution that guarantees the repayment of the mortgage subscribed by the borrower to the bank. This guarantee is frequently used by borrowers.
With the bond, the borrower contributes to a common fund
During the repayment period and in the event of default by the borrower, the guarantor pays in his place. He then turns against the borrower to get a refund, either by agreeing on an amicable solution, or by seizing the property and recovering the money on its selling price.
The borrower who opts for the guarantee to secure his real estate purchased on credit, contributes to a common fund with the specialized agency like other borrowers using this solution. In the event of impossibility of reimbursement of the remaining monthly payments, the guarantor company draws on this fund to repay the outstanding capital. It is important to know that each surety organization operates in a different way. Some ask for a mortgage promise from the borrower at the time of the subscription, while others only accept files that have been previously approved by the credit institution for the loan. Thus, it is advisable to study well the privileges offered by each one of them before engaging.
It is also important to distinguish between the single bond and the joint bond. In the case of a simple bond, the creditor sues the borrower before applying to the surety. In the case of the joint suretyship, the surety agrees to settle the debt of the debtor from the first incident of payment. This second option is generally preferred by banking organizations.
How to set up a bond?
Any natural or legal person can stand surety. An act of security will be required by the lender to verify that the surety has sufficient means to engage.
The guarantee must be made in writing by mentioning the type of commitment (simple or joint) under penalty of nullity. Like the borrower, the surety receives the credit offer by mail and has a cooling off period of 10 days after receipt.
Bail, a guarantee for your credits cheaper than the mortgage and the money lender
In return for this guarantee, the borrower pays the surety company a bond fee (a percentage of the loan or a lump sum) and a contribution to the pooled fund allowing the agency to repay the loans of defaulting borrowers.
The bond is particularly advantageous because it saves time compared to the mortgage and the privilege of the lender of money. It is also less expensive. If the repayment of the loan proceeds as planned, the borrower can even recover some of the funds invested. However, the establishment of the bond of a mortgage is not systematic and requires validation of the file by the specialized agency.
The pledge of a life insurance policy to guarantee housing on credit
The pledge of life insurance is another way of securing real estate purchased on credit. It involves pledging existing or future financial investments.
The pledge of a life insurance policy in exchange for a mortgage
Collateral is an alternative to mortgages, lender privileges, or surety bonds that are sometimes inaccessible. To pledge a financial investment is to pledge it to your bank in exchange for a loan. In the event of default by the borrower, the bank will repurchase the contract for the amount of the debt. If the amount of the pledged investment is less than the amount of the loan, the bank may request a supplementary guarantee.
How to set up a pledge contract?
The collateral is usually written in three copies for the bank, the insurer and the borrower.
The bank can guarantee its claim by two methods: either by becoming the beneficiary of the pledge contract in proportion to its rights, or by asking for the pledge of the contract.
With the pledge agreement of a life insurance policy, the borrower remains the owner of his investments
The cost of setting up a collateral varies according to the banking institutions but does not often exceed 500 euros. The main advantage of this guarantee lies in the possibility for the borrower to obtain a mortgage while remaining the owner of his investments and without having to divest. The pledge of a life insurance policy avoids the use of the sometimes expensive mortgage or a borrower insurance contract.
It should be noted that the borrower will not be able to dispose of his contract until the loan is fully repaid.
Thus, borrowers have several options to secure a property purchased on credit. The choice of the guarantee depends essentially on your profile and your objectives.