The mortgage contract is a contract in which a loan is granted to a party who puts real property as collateral. Thus, even if the debtor does not pay his credit, the creditor can claim the sale of the property and, in this way, recover the amount owed.
In other words, the mortgage contract is a credit tool that grants a real security right for the person who grants the loan on the property that has been established as collateral. Although mortgages are usually made on real estate or land, works of art or vehicles are sometimes mortgaged.
The mortgaged property remains the property of the debtor, despite being mortgaged and being the guarantee of payment of the debt. You can mortgage your own home without having to abandon it. If the debtor does not comply with the periodic payments of his debt, the creditor has the power to claim the sale of the property established as guarantor.
The sale is made as a public auction, not as a common direct sale. The mortgage has the disadvantage that, in times of economic recession, the real estate that guarantees the debt can be significantly devalued, thus affecting the ability of the creditor to recover the money borrowed.
characteristics
The mortgage contract has its own characteristics that distinguish it from other types of contracts. These characteristics are:
- Large amounts and long-lasting.
- Depending on whether it is a habitual residence or a second residence, different conditions are available. Normally, for a habitual residence the conditions are better.
-Interest is paid for the money borrowed, generally it is a percentage of the remainder of the loan that remains to be paid. Financial entities in mortgage contracts usually establish fixed, variable or mixed interests.
-Recurring payments consist of several elements: on the one hand, a percentage of the borrowed capital; and on the other, the proportional part of the applicable interest. Its final amount varies according to the amount owed, the term to return it and the established interest.
-Generally banks or financial entities offer mortgages for a maximum of 80% of the appraised value of the property. The remaining amount is initially paid as entry.
-The possibility of full or partial early cancellation of the loan can be agreed. Sometimes you need to pay early cancellation fees.
-If it is canceled before the termination established in the mortgage contract, it may happen that the remaining installments are reduced so that the periodic amount decreases, that the remaining term to finalize the loan is reduced or that the contract can be modified or renewed of mortgage according to the parties.
Origin
Its origin is classical Greek, in which hypo means "below" and tek means "box." He was referring to something that was hidden and not seen: the property still belongs to the owner, the debt is hidden.
However, the current regulations of the mortgage contract have their roots in Roman law, in which there were two systems to ensure the collection of a debt:
-The fiducia, which refers to the fact that the debtor passed the property of an asset to the other party as collateral. It was an unsafe system for the debtor.
-The garment, which is similar to the current figure.
Parts
There are two parties to the mortgage contract. On the one hand there is the creditor who lends the money, and on the other hand there is the mortgagee, who is the one who offers the guarantee of the payment of the debt through an asset owned by him.
Both parties must have specific capacity to carry out the mortgage contract. As for the creditor, it is required that they have the capacity to act, which is presupposed in natural and legal persons. Mortgage creditors are normally financial or similar entities.
The mortgagee who puts his property as collateral must also have the capacity to act and demonstrate effective ownership of the property. Not always the mortgagee is the debtor, but sometimes it may be a third party who is presented as a real guarantor.
Requirements of the parties
Article 1857 of the Spanish Civil Code determines the requirements for the mortgage contract. Said article includes the following: “the essential requirements of pledge and mortgage contracts are:
1- That it is constituted to ensure the fulfillment of a main obligation.
2- That the thing pledged or mortgaged belongs to the property of the pawn or mortgage holder.
3- That the persons who constitute the pledge or mortgage have the free disposal of their assets or, in case of not having it, are legally authorized to do so. Third parties outside the main obligation can ensure this by pledging or mortgaging their own assets ”.
According to this article, property ownership is the main element on which the entire mortgage contract depends.
Examples
First example
Mr. Pérez, as a debtor, enters into a mortgage contract with Banco Vista, which is his mortgagee. In this contract it is stated that the bank will loan you 150,000 euros - this is the principal of the mortgage contract - at an annual interest of 3%.
Through this mortgage contract, Mr. Pérez is obliged to repay this loan within 15 years (in monthly installments) by submitting as a mortgage guarantee a painting valued at 300,000 euros.
Second example
María and Juan want to buy a new house (100,000 euros) and apply to the bank for a mortgage for 80% of the value of the apartment (80,000), since they have saved 20,000 euros that they contribute as income.
They establish a mortgage with an interest of 4%, which they will pay in monthly installments for 25 years. 10 years later, María and Juan inherit some money and decide to cancel the remaining mortgage, having to pay 1% of the remaining amount as a cancellation commission. This amount was reflected in the mortgage contract.
References
- Economipedia. Mortgage. Economipedia.com
- Vazquez & Apraiz and associates. The mortgage loan. Tuabogadodefensor.com
- Right. (2008) Mortgage contract. Laguia2000.com
- Examples of contracts. Loscontratos.blogspot.com
- Wikipedia. Mortgage Agreement.