When people make a real estate purchase (eg a house, an apartment), they usually resort to a mortgage loan granted by a bank. To protect itself from possible cases of non-repayment of the loan, the bank will require a guarantee: either a mortgage or a deposit . If it is a deposit, the bank will a priori ask for a joint surety, allowing him to recover all the debt from the person who has surety.
Mortgage or surety: what differences?
Mortgage or guarantee: Characterization of the deposit
The surety is provided by a surety agency that guarantees a person in case of default. If the person does not repay the loan, the bank will still have the assurance of being reimbursed by the surety agency (also called the “surety”).
The terms of the bond vary depending on the bonding organization. It is possible for the bonding agency to simplify the process and to provide support to the borrower as soon as the mortgage is placed with the bank. Depending on the organization concerned, the borrower can also benefit from a complete analysis of his project by the organization, in addition to that of his bank.
The bail mechanism will result in the payment of loans equivalent to the cost of the deposit. These sums will then be returned to the borrower if the latter has finished repaying his mortgage.
Some bonding agencies also offer to handle the communication between the borrower and the bank. In the event of recovery, the organization can take the initiative of the dialogue and the search for amicable solutions. Every effort will be made to have the borrower resume regular payment of their loan maturities. The bonding agency does have an interest in having the borrower repay the mortgage itself.
Warning ! Do not confuse bond and loan insurance. Loan insurance covers cases of specific default such as death, illness, permanent or temporary incapacity for work of the borrower. After repaying the bank, the insurance to borrow will not require repayment to the borrower, unlike the bonding agency. The bond given by a surety agency (the surety) can not replace the loan insurance.
The loan insurance must be subscribed to be able to take out a mortgage from the bank and the borrower can not refuse to take one. Loan insurance is related to the borrower’s health status and it is normal that before entering into this type of contract, the insurer asks questions about the health of the borrower. This insurance can be offered by the bank itself to which the mortgage is subscribed. The borrower can also choose another insurer than the bank (eg if the bank refuses to insure in certain cases related to the situation of the borrower): he can help the many insurance comparators for to decide.
In case of unpaid bills from the borrower, there will be different procedures:
- the bonding agency (the guarantor) will initially replace the borrower by repaying the unpaid installments of the loan to the bank.
- the bonding agency (the surety) can try to find an amicable solution with the borrower to recover the money paid for his place. If no amicable solution is found, the bonding agency (the surety) may proceed to a registration of conservatory judicial mortgage. If the deposit is still not refunded, this will lead to a seizure sale: this procedure will immobilize the property of the borrower and proceed to its sale in order to repay the bonding agency (the deposit).
The deposit is not mandatory, it can be replaced by the mortgage .
Mortgage or Guarantor: Characterization of the Mortgage
The mortgage remains the most common form of mortgage loan guarantee. The mortgage relates only to the property concerned. When the borrower does not pay the loan, the bank may request the seizure of the real estate subject to the mortgage to be reimbursed.
A mortgage must obligatorily be carried out by authentic deed, that is to say by passing in front of a notary, and is then the object of a publication with the service of the land advertisement. This service makes it possible to make public all the formalities concerning the real estates and thus allows any person to take knowledge of the information concerning the real estates located in France.
Each person can therefore apply to the land registration service concerned: there are several services of land registration for each French department. The directory of land registration services is available online. Each land registration service is in charge of a jurisdiction that includes several cities.
The land registration service was formerly called “Mortgage Retention” or “Mortgage Office”.
The mortgage of a property is limited in its duration: it is equivalent to the term of the mortgage plus one year. However, it can not exceed fifty years.
Good to know ! Cost of a Mortgage : The mortgage registration has a cost: the mortgage fees include the notary fees, the registration fees, the formalities fees as well as the real estate security contribution.
If the borrower repays their mortgage loan maturities correctly throughout the term of the loan, the mortgage will automatically terminate not at the time of payment of the last installment but one year after that date. If the borrower plans to resell his property before the end of his mortgage, he can fully apply for a mortgage waiver. Nevertheless, this request is paying off. The mortgage will only be effective if the borrower pays the requested fees.
Mortgage or surety: difference between mortgage and mortgage surety
The concept of mortgage surety is used to describe the mechanism whereby a third party, and not the borrower, qualified as a surety, provides as collateral a property of which he is the owner.
Mortgage or guarantee: which guarantee to choose?
The deposit can represent an interesting way of guarantee thanks to its flexibility of adaptation: contrary to the mortgage, the deposit is not necessarily attached to the property. Some bonding organizations (bond) offer to transfer the secured loan for free on a new real estate purchase. In this case, the bank concerned will have to send all the necessary documents to the bonding agency (the surety).
Warning ! This transfer option is not available if the person is considering changing banks. In this case, it will be a loan redemption.
Mortgage or surety: cost of a mortgage
Also, unlike the mortgage mechanism, there will be no mortgage release fee for the surety if the property is resold before the end of the loan. The lifting of a mortgage can occur either by amicable agreement between the borrower and the bank or by decision of the judge. This procedure allows you to terminate the mortgage on real estate before the automatic end of one year after the last repayment date of the loan. The owner of the property must pay a release fee, the amount of which depends on the value of the loan.
Good to know ! Another type of bond is possible for civil servants such as state and local government officials, national education personnel, police officers, hospital staff and court officials. This bond is called “mutual guarantee official”.
The operation of this type of bond can be very convenient because the person concerned makes low contributions in exchange for risk taking by the company mutual guarantee official.
This form of bond is also very advantageous since it is solid. However, the bank of the borrower must have signed an agreement with a mutual guarantee company civil servant.
Before choosing a method of guaranteeing a mortgage ( mortgage or bond ), several criteria must be taken into account: in particular if the guarantee mode is available to the borrower in view of his personal situation and also the cost that it represents for the latter. It is therefore an individual analysis and it is recommended to seek advice from experts in the field. This issue of mortgage loan guarantee is not insignificant since the repayment of such a loan is spread over several years.
The borrower can initially inquire with the bank that will grant the mortgage. It can also use the many online price comparators.
It is obviously advisable not to commit to the repayment of a home loan if the person knows in advance that it will not be able to repay the installments on a regular basis.