Apartment with a mortgage: features and practical tips

09/04/2020 1 581 0 Reading time: 8 min. Rating:

Author

: Konstantin Bely

What is a mortgage? Everyone knows this word, but practice shows that not everyone knows its true meaning and interprets it correctly. In this article, I want to fill this gap and explain to you what a mortgage is in simple words, how it works, what types of mortgages exist, and many other important points related to this concept. So, first things first.

Mortgage history

The word “mortgage” appeared in the 6th century BC in Ancient Greece. It denoted a pillar or pole on which it was indicated that the land belonging to the “borrower” serves as security for property claims for a certain amount. Next to it were the names of the “borrower”, “creditor” and the terms within which the debt must be repaid. If for some reason it was not possible to repay the debt, the land went to the creditor.

Over time, the use of such pillars was abolished, they were replaced by mortgage books, and the word “mortgage” firmly came into use as a designation for lending against collateral.

Mortgage in a new format continued its development, first in the Roman Empire, and then spread throughout the Middle Ages.

Despite the fact that the history of mortgages began so long ago, in Russia such a practice took root only in the 90s of the last century, although its first manifestations could be traced back to 1917.

Mortgage: what is it and how to get it

A mortgage is a type of security for obligations, including a mortgage loan or credit. A distinctive feature of mortgages from other types of loans is the emergence of long-term credit obligations. Unlike loans, which are aimed at purchasing expensive goods and services (car, training, treatment, luxury goods), a mortgage only involves the purchase of real estate.

The following acts as collateral for a mortgage:

• House
• Apartment
• Country house
• Land plot
• Other objects

If the borrower fails to fulfill loan obligations, the collateral housing may be sold by the bank by putting it up for auction. This procedure is regulated by the Federal Law “On Mortgage (Pledge of Real Estate)” dated July 16, 1998 N 102-FZ.

How to get a mortgage

In the case of a mortgage, you should avoid any spontaneity, since the loan amount is impressive, you should carefully weigh and evaluate all the risks. Here are 5 simple steps to help you.

1. First, you need to find out as much information as possible about the selected bank or other lending organization.
2. Read the documents carefully, not missing anything written in small print.
3. Don't forget to make photocopies/photos of the documents/agreement.
4. It is worth coming with a competent lawyer to familiarize yourself with the terms of the mortgage, agreement and other documents.
5. Always ask for the entire package of documents and contracts to be signed. This way you won't miss the smallest details and will be able to better visualize the big picture.

If you are still at the stage of choosing a bank:

1. Compare the stated interest rates of different banks. Calculate your monthly payment and loan overpayment yourself using a mortgage calculator.
2. Find out about the possibility of early repayment of the mortgage and the possible commission.
3. Find out what the interest rate will be if you refuse insurance.
4. Please read carefully the measures taken against borrowers with overdue debts.

You might be interested in: “Mortgage or rent – ​​which is more profitable?”

Factors influencing the interest rate

Any mortgage advertisement will list a minimum interest rate. When contacting a bank, citizens may be disappointed that a specialist, having examined all the data for applying for a mortgage, will report a higher rate. This does not mean that the credit institution is trying to deceive the client. In reality, interest rate fluctuations are caused by many factors:

• Central Bank rate. It affects not only mortgages, but all types of loans. The lower this rate, the more favorable lending conditions the bank will be able to provide.
• An initial fee. For citizens who are ready to make a large amount as a down payment, the credit institution tries to accommodate them halfway. Therefore, these clients are given the opportunity to obtain a loan with a reduced interest rate.
• Proof of income. The easiest way to get any type of loan is for those clients who are salary card holders. They do not need to additionally collect documents that would confirm the level of income and its stability. The bank is always more loyal to such citizens. This also manifests itself in favorable conditions for cooperation.
• Seniority. Each bank puts forward certain requirements for work experience, so before submitting an application, you should clarify this point. As a rule, clients try to apply for a mortgage loan after working for at least 12 months.

You should remember a simple rule that banks follow. A high loan rate is assigned to clients who do not meet the general requirements. Many people believe that in this case the credit institution simply rejects the application, but in reality things are different. The bank is interested in issuing a loan and receiving interest from the borrower. Therefore, the bank provides mortgages even to those borrowers who do not meet the average requirements. However, the terms of cooperation are changing.

Types of mortgage programs

Mortgages are classified into: standard, social, for young families, for military personnel.

Standard

Due to high competition, banks offer many loan programs with a variety of conditions. A standard mortgage involves providing a large sum of money secured by real estate or after making a down payment. The most popular types of standard mortgages:

1. For secondary housing. Purchasing residential real estate on the secondary market is advantageous due to lower interest rates, short processing times and more lenient requirements for borrowers. A prerequisite is title insurance.
2. For the purchase of housing under construction. It is allowed to purchase housing during the construction stage, but the rates here are among the highest. On the plus side, such objects are valued slightly lower. By the way, if previously the purchase of housing under construction under an equity participation agreement (DPA) on the basis of Federal Law-214 carried significant risks (being left without an apartment due to unfinished construction) for the borrower, now such troubles are completely excluded. With the advent of escrow accounts, equity holders have become more protected, since their money is not transferred directly to the developer, but for safekeeping to a third party - the bank. Upon completion of the construction of the house and its subsequent commissioning, the funds are redirected to the seller.
3. For the purchase of land. The bottom line is that the borrower gives the lender real estate equivalent to a land plot as collateral. Until the mortgage is paid off, the site and everything that is built on it belongs to the bank.
4. You can get a loan to buy a house, provided that the borrower has his own land plot for construction. The collateral will be considered, as in the previous case, the land itself and everything built on it.
5. For suburban housing, which is usually represented by cottages and townhouses located in an ecologically clean area.

Social

Low-income people or those on the waiting list for housing can count on it.

• Young families with 2 or more children
• Families with a disabled person registered no later than January 2015
• Activists of culture, sports, social protection
• Veterans
• Employees of research centers with state status
• Workers of the military-industrial complex

Subsidizing social mortgages occurs in several ways: 1) state housing is sold at a reduced price; 2) a subsidy is allocated for interest on the loan; 3) a subsidy is allocated for part of the loan. What form of subsidy to provide to the borrower is decided at the regional level.

For a young family

A mortgage for a young family, in fact, is practically no different from a social one. The maximum age of borrowers at the time of application should not exceed 35 years; the presence of children is not necessary. The terms of this mortgage are not preferential; state assistance is expressed in the provision of a subsidy in the amount of 30-35% and the opportunity to use maternity capital.

Military

Military personnel who are NIS participants can count on receiving this type of mortgage. The state deposits funds into the personal account of the NIS participant, and after three years the serviceman is issued a targeted housing loan certificate.

The maximum loan term will be 25 years. To repay a military mortgage, you can use maternity capital or an additional consumer loan. In addition, the loan can be refinanced at another bank.

Advantages and disadvantages of mortgage lending

A mortgage has many advantages, but there are also disadvantages. Let's compare what is more.

pros

1. Short terms for purchasing housing, namely, there is no need to save half your life for housing, it is enough to go through and complete all stages of registration.
2. Legal purity of the object. The history of the purchased property is checked at least twice by the insurance company and the legal department of the bank.
3. A profitable investment. By purchasing an apartment or house with a mortgage, the borrower is making a profitable investment: the cost of the apartment will continue to grow along with inflation. If a person saved, then by the time he reached the required amount, the cost of housing would have been different, but for the borrower the price remains unchanged. At the same time, housing can be sold on the market at the current price.
4. Opportunity to save. By purchasing housing through various social mortgage lending programs, the borrower gets rid of the need to pay the entire amount on their own. Part of the loan is subsidized by the state or repaid by maternity capital. In addition, on the basis of Art. 220 of the Tax Code of the Russian Federation, you can receive a tax deduction.
5. Long loan term. The duration of the mortgage allows the borrower to repay the loan in small installments without causing serious damage to the family budget.

Minuses

1. High cost of credit. This is especially true for mortgages without benefits or on two documents, where the interest is sometimes prohibitive. Plus, the borrower bears the costs of paying for the services of an appraiser, a notary and for insurance.
2. Risk of illiquid housing. In case of bankruptcy of the borrower, illness, incapacity or protracted financial difficulties, there is a threat of losing housing, as well as collateral, if any.
3. Long loan term. Yes, you were not mistaken, this point applies not only to the pros, but also to the cons. After all, not everyone is ready to deny themselves everything for 10, 15, 20 or more years while paying off their mortgage.

FAQ

Should you take out a mortgage now or is it better to wait?

Now is the best time to take out home loans. The lowest rates in history are in effect, plus several government subsidy programs are in place.

Which bank is better for obtaining a mortgage?

The best one for you will be the one through which you receive your salary. Salary clients are always given the best contract terms.

Should we expect mortgage rates to rise?

Yes, it's worth it. The Central Bank has already raised the key rate from 4.25% to 5%; accordingly, banks will soon also raise the percentage. The Central Bank plans to keep the key rate at 5-6%, so there will be an increase again soon.

Which apartment is better to buy with a mortgage?

It is better to consider the option of buying in a new building. For such a mortgage, rates are always lower, especially if the bank and developer have created special conditions. In addition, various subsidy programs from the state are applied to new buildings.

Is it possible to save up for an apartment?

Theoretically it is possible. But if you can’t save a decent amount, it’s easier to take out a mortgage.

Sources:

1. Central Bank of the Russian Federation: Key rate of the Bank of Russia.
2. Frankrg: Mortgage.

about the author

Irina Rusanova - higher education at the International East European University in the direction of "Banking". Graduated with honors from the Russian Economic Institute named after G.V. Plekhanov with a major in Finance and Credit. Ten years of experience in leading Russian banks: Alfa-Bank, Renaissance Credit, Home Credit Bank, Delta Credit, ATB, Svyaznoy (closed). He is an analyst and expert of the Brobank service on banking and financial stability. [email protected]

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Useful tips for a mortgage loan

Now that a lot has already been said about mortgages, we consider it reasonable to give some advice to those who have decided to commit themselves to long-term credit obligations for the first time.

• Take your assessment of your capabilities seriously. If there is a risk of being left without work, it is better to refuse a mortgage for a while. In addition, you should not spend more than 30% of your income on loan payments.
• Try not to take out a mortgage loan for too long, so you will have less final overpayment and interest.
• Be sure to create a financial safety net: it would be a good idea to set aside money to pay the mortgage for at least a period of 3-4 months.
• Use the services of an independent appraiser, rather than realtors and sellers, who often wishful thinking.
• Choose a fixed rate rather than a floating one, as the economy is not stable.
• Do not act as a co-borrower with a friend, matchmaker, or even close relatives if you have doubts about their reliability. If the borrower is declared bankrupt or refuses to fulfill loan obligations, the mortgage burden will fall firmly on your shoulders.
• Read the documents and requirements of the bank in advance, do not hesitate to ask again or visit the bank again in the company of an experienced lawyer.

By following all the advice and weighing the pros and cons, you can avoid various financial swings and become the owner of your own home without having the entire amount in hand.

The legislative framework

In a sea of ​​different laws, one can single out those that directly regulate mortgage relations. The creation of a legislative and regulatory framework is the primary mission of the state in the establishment and development of residential mortgage lending, reducing risks for banks and borrowers, and increasing the availability of mortgages.

1. Thus, the legislative framework for mortgages includes:
2. The Constitution of the Russian Federation of December 12, 1993, which enshrines the rights of citizens to housing and the protection of private property.
3. Federal Law of July 16, 1998 No. 102-FZ “On Mortgage (Pledge of Real Estate).”
4. Federal Law of July 21, 1997 No. 122-FZ “On state registration of rights to real estate and transactions with it.”
5. Civil Code of the Russian Federation (Articles 37, 131, 209, 246, 260, 329, 365, 387, 488, 855, 935), establishing general rules for securing loans secured by real estate, provisions on ownership and other proprietary rights to premises; grounds for foreclosure on mortgaged residential premises, etc.
6. Letter of the Federal Tax Service of the Russian Federation dated June 9, 2005 No. 14-1-05/1884 “On property tax deduction.”

You may be interested in: “Mortgage without a down payment - accessible and concise”

Where is it more profitable to get a mortgage: list of banks

A potential borrower has the opportunity to choose any credit institution whose conditions suit him. Before submitting an application, the client can familiarize himself with all the banks’ offers and submit applications to several of the most suitable ones at once.

Purchasing housing on the primary market poses a special difficulty. Housing under construction is purchased with a mortgage only from those credit institutions where the developer is accredited.

Banks offer various lending programs and conditions. The answer to the question of which bank has the best mortgage depends on the age, capabilities and social status of the borrower.

• Sberbank . This is the largest bank with a share of state support. It offers a large number of programs: for young families, state employees, military personnel, pensioners, large families, etc. The bank offers favorable conditions, a low interest rate (depending on the program and the size of the down payment), but requires mandatory confirmation of your solvency, life and health insurance, and real estate.
• Alfa Bank . The bank offers mortgage loans in amounts starting from 300 thousand rubles and for a period of up to 25 years. Different programs have different interest rates. The minimum is 10.5%, but with a sufficient down payment. The larger the deposit, the lower the interest rate. At the moment, the optimal rate is 17% per annum.
• Rosselkhozbank . The bank offers loans in the range from 100 thousand to 20 million rubles. The term is up to 30 years depending on the amount and age of the client. There is no registration fee, but mandatory insurance of real estate, life and health of the borrower is required.
• VTB 24 . When applying for a mortgage, the bank requires an initial payment of at least 20% of the cost of housing, but provides loans at a relatively low interest rate. The rate ranges from 11 to 13%; there is a separate program for military personnel on favorable terms.
• Gazprombank . The credit institution offers loans at interest rates of 12.5% ​​and above. The bank sets strict conditions regarding terms and does not always allow long-term lending. There are additional bonuses for those who apply online.

What type of housing can be purchased with a mortgage?

Mortgage lending helps citizens become homeowners in both the primary and secondary markets. The main thing is that the selected objects meet all the requirements of the bank and the appraisal commission. As a rule, the main condition of a lending organization is the liquidity of housing over a long period of time.

If the borrower refuses to repay the loan, the bank must sell the pledged property at an adequate market price that will cover all costs and expenses.

When purchasing on the secondary market, you must avoid housing that has unauthorized alterations. If the bank discovers this, the transaction will be considered illegal.

If there are registered minor children in an existing house/apartment that is being pledged as collateral, the bank will most likely refuse a mortgage.

Housing purchased under the mortgage lending program must be built no later than 1975.

Mortgage approval can be obtained if:

• the apartment or room has a separate room and bathroom from others;
• the apartment has a working heating system that provides heat to the entire room;
• the apartment has a working roof (if on the top floor), windows and doors;
• the apartment is not registered and third parties are not involved in the transaction;
• a multi-storey residential building has at least four floors (does not apply to houses built later than 1991);
• the house in which the apartment is purchased does not require major repairs;
• the foundation of the house where the apartment is purchased is made of concrete, brick, stone;
• the building in which the apartment is located has a mixed metal or reinforced concrete floor.

If we talk about types of housing, then you can buy an apartment, townhouse, or country house with a mortgage. In the residential area "Harmony", 9 km from Stavropol, the listed properties are presented at affordable prices. Apartments are offered both ready-made and under construction. You can purchase townhouses in Harmony, which act as an alternative to a three-room apartment, in different formats: from “screed-plaster” to “come in and live.”

Now is the best time to get a mortgage

If you are thinking about when is the best time to get a mortgage, now is the best time to do it. It's all about interest rates. Currently, housing loans are issued at an average interest rate of 7.26% per annum. Objectively, it’s about 8%, since the calculation of the average rate takes into account loans received through subsidy programs.

The value of the mortgage rate is directly affected by the key rate of the Central Bank of the Russian Federation. As soon as the Central Bank changes it, the market reacts to it within 1-2 months. The key rate has decreased - we should expect a decrease in interest rates on all loans.

Key rate dynamics:

• spring 2021 - 7.75%;
• October 2021 - 7%;
• June 2021 - 5.5%;
• July 2021 - sharp decline to 4.5%;
• from August 2021 to March 2021 - 4.25%.

In March 2021, the Central Bank of the Russian Federation raised the key rate to 4.5%, in April - to 5%. This means that mortgage rates will soon increase by about 1%. For 3 years, according to Elvira Nabiullina, the key rate will be stably within 5-6%.

We can come to the conclusion that over the next 3 years, mortgage prices will definitely rise by 1-2% compared to the average rate for the second quarter of 2021. That is, contracts will be concluded at 9-10%.

Today the market is witnessing the lowest key rate of the Central Bank of the Russian Federation in all the years of its existence. It is even lower than in the pre-crisis stable year of 2013 (then it was at the level of 5.5%). Right now, banks are issuing the most profitable mortgages of all time.

Dynamics of mortgage rates from January 1, 2021 to March 1, 2021:

There is a clear drop in rates. But due to the increase in the key rate from 4.25% to 5%, very soon banks will react to this and raise the price of mortgages. And then, if the Central Bank of the Russian Federation, according to its plans, increases the key rate to 6%, an increase in the cost of loans cannot be avoided.

For example, let’s analyze how the price of a mortgage will rise if the rate increases by 1%. Let's consider the same mortgage above with an apartment price of 3.5 million. At a rate of 7.94%, the payment will be 28,328, the overpayment will be 2,124,000 rubles. At a rate of 8.94% - 30,068 and 2,437,000. The difference in overpayment is more than 300,000.

conclusions

Mortgage lending is one of the main tools for purchasing real estate, which has many advantages, but it is also not without pitfalls. Before you take on a long-term loan obligation, a mortgage, you need to soberly assess your capabilities and future risks, then you can become full-fledged owners without problems.

If you are interested in the question of when is it more profitable to buy housing in the near future, you can listen to the opinion of the Marketing Director of the Third Rome Construction Group.