A mortgage describes the lien according to article §1113 – §1190 BGB on a specific piece of land. It serves as a security of a claim (mostly a loan). This means that the land or property in question represents collateral for the default risk for the financing bank or institution. As a borrower you will then receive a certain amount from the bank as a mortgage loan.
In addition to the mortgage itself, other security measures are also taken by the banks and institutions. This includes, above all, checking the creditworthiness of the borrowers. The loan taken out in the case of a mortgage loan is secured by a mortgage in the land register.
By taking out a mortgage, the borrower cedes all rights to his own property. This means that the financing bank can have recourse to it in the event of an incidence.
In the meantime, however, the procedure via mortgages has become obsolete. Instead, more and more often the process of the land charge is taken up. Since the term "mortgage" is widely used, it is nevertheless often applied and basically describes two different areas of application: on the one hand, the securing of a loan and, on the other hand, as a synonym for real estate financing.
Difference between mortgage and land charge
As already mentioned, the mortgage procedure is now obsolete. Only 20 % of all land rights are still mortgages. The so-called grundschuld takes more and more the place of the mortgage. This is easier for banks and credit institutions to implement. The advantages of this become particularly apparent in the event of the insolvency of the borrower.
Although both the mortgage and the land charge are land charges, the land charge is not tied to any specific claims. Another difference is that if you repay the loan using the land charge procedure, your loan debt is reduced, but the land charge remains in full force and effect.
As soon as you have paid the last instalment on the mortgage loan and have thus settled your debt, the mortgage expires. The respective bank has thus no longer a claim on their property. In contrast, the land charge always remains in full, even if you have already repaid the loan.
Mortgage for construction financing
There are various options when taking out a mortgage. You should be aware of the exact purpose of the mortgage and the initial situation you are currently in.
Essentially, you have two usage options to choose from:
You can take out a mortgage when you take out initial construction financing to buy and finance a new property. Mostly, however, the procedure of the mortgage is replaced by the security of the land charge.
With this option you can borrow against your already financed house. At the same time you can take out another loan.
A second financing through the same bank gives you advantages and you save the notary and land registry costs, which minimizes the bureaucratic workload.
Taking out a mortgage is always associated with certain claims. The mortgage shrinks when you pay off the debt. This is called accessoriness. When you pay off your loan, the mortgage becomes a land charge over time. If you have repaid the loan in full but the mortgage is not cancelled, the mortgage is transferred to you and becomes an owner's land charge.
Types of mortgages
There are different types of mortgages and special forms of mortgages. These will be presented to you in the following:
This type of mortgage is the most common one. Here the claims are secured by the land register and do not have to be proven by the creditor. A distinction is made between a book mortgage and a letter mortgage:
In the case of a book mortgage, this is recorded in the land register. As a result, the land register entry must be changed in the event of a new transfer of the receivable.
In the case of a letter mortgage, you as the creditor receive a so-called mortgage certificate, which serves as a deed. In contrast to a book mortgage, only the deed needs to be changed when the claim is transferred.
Compared to the commercial mortgage, the security mortgage is much more closely tied to the existing receivables and thus has a stricter accessoriness.
If you are retired and want to take out a mortgage, the annuity mortgage gives you a larger sum of money and you have to register a mortgage on your property as collateral.
Other types of mortgages
Of course, there are other special types of mortgages, such as the forced mortgage or the general mortgage.
Amount and liability of the mortgage
The amount of the mortgage is determined from the value of the property in question. This is usually between 60 % and 70 % of the market value. The loss in value of the property is also included in the amount of the mortgage. The value is usually determined by an appraiser and the bank uses it to calculate the mortgage.
The landowner becomes the guarantor and is usually also the borrower. However, it is also possible to mortgage your own property as collateral for a third party.
Costs of a mortgage
If you would like to take out a mortgage, you will have to reckon with various costs. First of all, you have to pay the appraiser who determines the value of your property, which determines the amount of the mortgage. In addition, there are the costs of the notary regarding the mortgage contract. As a borrower, you will also have to pay the fee for the land register entry.
The way to financing
Before you start with the actual process of financing, we recommend you to do a preliminary check, in which you will examine the feasibility of financing. An initial assessment of the value of the property in question is the cornerstone of this process. Subsequently, you should also check your income and exception situation. By such a preliminary check, they check from the bank's point of view if they can afford the object.
The foundation of the subsequent financing is the elaboration of your personal goals and preferences. You should be aware of the various aspects of real estate financing – such as the monthly rates, interest formation, term, flexibility options, and the different types of loan repayment. From these jointly developed findings, our baufi-expert team provides you with several financing options and points out the respective advantages and disadvantages. This allows you to make a conscientious decision for an individually suitable solution.
After the development of the financing solutions, the next step is the conception of the necessary documents. Our team provides you with a prepared checklist, which shows you which documents the bank needs to check the financing. The bank will ask for different documents in order to get an idea of your creditworthiness. Depending on your individual needs, different documents will be requested.
The baufi-expert team will assist you with the property documents and work them out for you so that they are ready for the bank to process and you do not lose any time.
Before you send the forms to a bank, you should think carefully about which bank can best meet your individual needs. In the meantime, many banks and credit institutions offer financing options, which is why you should carefully check and compare which financing constellations are offered at which conditions. Only then you should finally choose a bank. The conditions offered by the various lenders depend to a large extent on the form and scope of your planned project.
Tips for financing the property
In the process of financing your desired property, you may encounter some obstacles. In order to make the process easier for you and to spare you the stumbling blocks, you should pay close attention to a number of aspects even before you start financing.
When choosing a property, you should always consider its value from the bank's point of view. It is becoming more and more common for financing commitments to fail because the banks often set a lower mortgage lending value for them than the actual selling price called for.
The most common mistake in the financing process is to follow the wrong order of priority. You must always first work out the exact preferences for you as a borrower. Only when you have worked this out can you compare interest rates and conditions.
Further stumbling blocks, which you should be spared on your way to financing, are the time pressure and missing documents. For your financial appraisal, complete and qualitatively valuable documents are necessary.
Advantages and disadvantages of a mortgage loan
Of course, taking out a mortgage brings with it certain advantages and disadvantages. One advantage is that the property serves as collateral for the bank, making its interest rates more favorable. However, you should know that in most cases not the full purchase price of your property can be settled by mortgages.
A disadvantage is the sometimes high cost of registering the mortgage in the land register. In addition, your property can only be sold when it is no longer encumbered with a mortgage.
Factors that influence the interest rate
You are probably looking for low-cost but high-quality real estate financing with low interest rates. Various factors have an impact on the amount of interest to be paid on the loan.
External factors include, above all, the level of interest rates in germany and abroad in comparison. But many internal aspects also influence the interest rate. These include:
- Your creditworthiness as a loan seeker
- The loan amount
- The term or fixed interest rate
- The location of the property in question: a property in a sought-after location, for example, offers a higher likelihood of rentability.
- The type of property, or more precisely, the asset class: in this respect, retail properties such as shopping centers or stores, office buildings and hotels are particularly sought after.
- The value of the property or the quality of the construction: for the financier of your project, a new building represents less risk than a building that may still require renovation work because it may be dilapidated.
- The income calculation
Since projects always differ individually, most lenders do not publish fixed interest rates. This is another reason why you should inform yourself sufficiently about the respective bank or institute before concluding the contract. Not only the interest rate is adjusted to your individual project, but also the term. This usually takes between three and 15 years.
To get a rough overview of your real estate and construction financing, there are various online calculators available to you.
Basically, a mortgage describes that you get a certain amount as a mortgage loan from a bank and assign the rights of your property, as security for the bank. Mortgages are always tied to certain requirements and costs.
In order to find the most favorable offer, you should compare the conditions of the different banks and decide on a form of mortgage. However, the mortgage procedure is now somewhat outdated and the land charge is increasingly taking the place of the mortgage.