Mortgage Contract: Characteristics, Parts and Examples

He mortgage contract it is a contract in which a loan is granted to a party that places a 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.

That is to say, the mortgage contract is a credit tool that grants a real right of guarantee for the one that 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 guaranteeing the payment of the debt. You can mortgage your home without having to leave 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 direct direct sale. The mortgage has the disadvantage that, in times of economic recession, the real property that guarantees the debt can be significantly devalued, thus affecting the ability of the creditor to recover the borrowed money.

characteristics

The mortgage contract has its own characteristics that distinguish it from other types of contracts. These characteristics are:

- Large amounts and long-term.

- Depending on whether it is a habitual residence or second residence, different conditions are available. Normally, for normal housing the conditions are better.

-It pays interest for the borrowed money, it is generally a percentage of the remainder of the loan that remains to be paid. Financial entities in mortgage contracts usually establish fixed, variable or mixed interest rates.

-The periodic payments consist of several elements: on the one hand, a percentage of the capital loaned; and on the other hand, the proportional part of the applicable interests. The final amount varies depending on the amount owed, the term to return it and the interest established.

-Generally banks or financial institutions 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 upon. Sometimes it is necessary to pay commissions for cancellations ahead of time.

-If it is canceled before the finalization established in the mortgage contract it can happen that e reduce the remaining quotas so that the periodic amount decreases, which e reduce the remaining term to complete the loan or that s You can modify or renew the mortgage contract 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 could not be seen: the property still belongs to the owner, the debt is hidden.

However, the current rules of the mortgage contract have their roots in Roman law, in which there were two systems to ensure the collection of a debt:

-Fiduciary, which refers to the debtor passing the ownership of a good 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 parts of 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 a property owned by it.

Both parties have to have specific capacity to carry out the mortgage contract. As for the creditor, it is required that it has the capacity to act, which is presupposed in natural and legal persons. Normally the mortgage creditors are financial entities or similar.

The mortgagee who places his property as collateral must also have the capacity to act and demonstrate the effective ownership of the property. Not always the mortgagor is the debtor, but sometimes it can be a third party that is presented as real guarantor.

Requirements of the parties

Article 1857 of the Spanish Civil Code determines the requirements for the mortgage contract. Said article affects the following: "Are essential requirements of the pledge and mortgage contracts:

1- That is constituted to ensure the fulfillment of a principal obligation.

2 - That the pledged or mortgaged property belongs to the pawning or mortgaging property.

3- That the persons who constitute the pledge or mortgage have the free disposition of their assets or, if they do not have it, they are legally authorized for this purpose. Third parties outside the main obligation can ensure this pledging or mortgaging their own property.

According to this article, ownership of the property is the main element on which the entire mortgage contract depends.

Examples

First example

Mr. Pérez, as debtor, formalizes a mortgage contract with Banco Vista, which is his mortgage creditor. This contract states that the bank will lend 150,000 euros - this is the capital of the mortgage contract - at an annual interest rate of 3%.

Through this mortgage contract Mr. Perez is obliged to repay this loan within 15 years (in partial 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 ask the bank for a mortgage for 80% of the value of the apartment (80,000), since they have saved 20,000 euros as input.

They establish a mortgage with an interest rate of 4%, which they will pay in installments for 25 years. 10 years later María and Juan inherit a money and decide to cancel the remaining mortgage, having to pay 1% of the remaining amount as a cancellation fee. This amount was reflected in the mortgage contract.

References

1. Economipedia. Mortgage. Economipedia.com
2. Vazquez & Apraiz and associates. The mortgage loan. Tuabogadodefensor.com
3. Law. (2008) Mortgage contract. Laguia2000.com
4. Examples of contracts. Loscontratos.blogspot.com
5. Wikipedia. Mortgage contract.