Home equity loans are loans in which their return, in addition to being guaranteed in a personal way (the debtor is responsible for the return of the loan with all his assets), is also for real property. Thus, if the debtor does not comply with the previously established conditions of repayment of the loan, that real property will pass into the hands of the creditor.
Most often, the borrower uses the loan amount to purchase the real estate that, at the same time, acts as a mortgage guarantee. However, there are mortgage loans in which the borrower offers as collateral a home that he already owns and uses the loan amount for purposes other than the purchase of a home.
What risks do I run when applying for a mortgage loan?
Applying for a mortgage loan involves taking several risks. The main and most common is for the entity to keep the property that has been offered as collateral.
And not only with housing! As we mentioned before, home equity loans are also personal guarantee loans. What does this mean? That the debtor responds with all his patrimony (present and future) to pay the total of the contracted debt. In other words, if the value of the property does not cover the totality of the contracted debt, the borrower will not only be evicted, but will also continue to owe money to the entity that has granted him the loan.
In addition, each type of mortgage loan has its own risks, since they may or may not depend on the variation of the Euribor. Let’s see them:
- Fixed-rate mortgage loans : it is possible that the Euribor will be at low levels and the borrower will not benefit from them. In addition, it must be borne in mind that, in this type of mortgage loan, the duration is usually shorter and, therefore, requires a greater financial effort on the part of the borrower. In turn, the fees for early cancellation are also higher
- Variable rate mortgage : this type of mortgage varies according to the Euribor, so it may happen that the Euribor appreciates and, with it, increases the amount of the loan to be paid each month
- Mixed mortgages: these mortgages are characterized because, in the first phase of the life of the loan, they are at a fixed rate, while later they become a variable rate. In this case, the risks of this type of loan are a combination of the risks of the fixed-rate mortgage and those of the variable-rate mortgage.
How do I calculate the amount of the mortgage loan to pay?
Mortgage loans are generally governed by the French loan repayment system.
Let’s see with an example how this system is applied to the mortgage payment!
In the example above it is seen that, during that first year, we will have to pay 789.99 dollars each month. However, suppose that for the following year the Euribor has fallen to 3.25%. How would this affect our mortgage payment to be paid?
The first thing to keep in mind is that, of the initial 100,000 dollars that there was in capital, we have already amortized a part. The amount of capital that we would still have to pay, if we made the amortization table, would be 95,400.77 dollars.
How do I apply for a mortgage?
In order for a mortgage loan to be granted, the applicant must go to the corresponding entity and present all the documentation along with their application.
Next, the entity will assess the viability of granting the mortgage loan following a specific valuation method (generally scoring) and, if accepted, will contact the client to make a binding offer that the applicant should study if accept or deny.