What is a mortgage and how does it work in 2020: calculation calculator

Mortgage: what is it and how to get it

To the question of what it is, the answer is this: a mortgage is a form of collateral when the debtor pledges real estate in his ownership. This is a guarantee of debt repayment for the lender. This is the essence and precise definition of a mortgage. Knowing what an apartment mortgage is, you must understand that if your financial situation worsens or you completely lose your solvency, you may lose your property.

You can express in simple words what a mortgage is as follows: you sign a mortgage agreement, receive money, and monthly pay the lender the amount specified in the agreement. The real estate that you pledged falls under the mortgage. The following can be provided to the bank as collateral:

• House;
• plot of land;
• dacha;
• apartment;
• other objects.

If the contract is violated by the client, the bank becomes the owner of the property and can sell it so as not to incur a loss. This scheme is the basis of the mortgage market in Russia. The main document that guides financial institutions when drawing up mortgage agreements is the law adopted in 1998. It is called “On Mortgage”.

Main characteristics of a mortgage loan:

• issuance for a long period (5-50 years);
• appointment;
• relatively low interest rates;
• executed in strict accordance with mortgage legislation.

The collateral itself belongs to the borrower, but he does not have the right to dispose of it independently. The credit institution has the authority to use it at its discretion in the event of problems with debt repayment.

What is a home mortgage: the whole point

Mortgage is the use of funds borrowed from a bank to purchase residential or non-residential real estate. The client comes to any branch of the selected bank with all the necessary documents and, when the loan is approved, the required amount is provided (read more about mortgage approval here).

Any real estate can be the subject of a mortgage in Russia, however, the following objects should be highlighted in the main list of lending items:

• Land plots (read about mortgages for land and houses here).
• Apartments, residential buildings.
• Parts of individual apartments (for example, one or two rooms).
• Dachas, as well as other buildings of consumer value.

It is worth noting that in most cases you take out a mortgage to buy your own home - an apartment or a private house.

Types of standard mortgage

Banks, competing with each other, offer many programs under a variety of names, reflecting the method of obtaining a mortgage or purpose. Often, what is commonly understood as a mortgage is money provided as collateral, and it must be returned, otherwise the bank will deprive you of the collateral. The most popular types of mortgages (mortgage loans):

1. For the purchase of housing on the secondary market. This type is attractive due to its optimal interest rates, relatively short processing time, and conditions acceptable to most. It differs from other types in that it requires mandatory title insurance.
2. For real estate under construction. Housing can be purchased at the construction stage, but the developer must be approved by the bank. The interest rate here is the highest, but the housing itself is valued slightly lower.
3. To purchase a plot of land. The borrower pledges real estate of equal value to the bank, and can begin new construction on the acquired site. Until the mortgage is repaid, the financial institution has as collateral everything that the developer has built on the acquired site.
4. To build a house. You can get money on bail if a person has his own building plot. When considering an application, the belonging of the land to a specific category is taken into account. The collateral is a plot of land, housing under construction and other structures located on the land.
5. For real estate outside the city. The program provides for the purchase of a country house, townhouse or cottage. Typically, such housing is located in an environmentally friendly area, and proposals are developed by credit institutions together with developers.

Types of mortgages and mortgage loans

Despite the fact that the essence of mortgage lending remains the same, regardless of the bank and loan program chosen by the client, types of mortgages may be different.

In 2020 there are:

• standard loans;
• special conditions for the military (the need to separate such offers into a separate type is caused by the increased risk associated with the borrowers’ profession);
• proposals with state support for the least protected sections of society;
• loans for young families (one of the spouses must be under 35 years old);
• lending to young professionals, designed for public sector workers.

Special attention is paid to the fact that most banks have special offers related to the purchase of housing from developers who are partners of the credit institution. They are the most profitable and economical.

Social mortgage

Low-income segments of the population who are on the waiting list for housing can count on this type of mortgage:

• young families with two or more children;
• families where a disabled person lives, registered before January 1, 2015;
• workers of culture, sports, social protection;
• veterans;
• employees of research centers with state status;
• employees of the military-industrial complex.

Social mortgage means that the state provides financial support to borrowers to fulfill their obligations to the bank.

Social loans are subsidized in several ways:

• public housing is sold at reduced prices;
• interest on the loan is subsidized;
• A subsidy is provided for part of the mortgage.

The decision to apply one form or another of social mortgages is made by regional authorities.

Mortgage for a young family

Let’s answer the question: what is a mortgage for a young family for housing in Russia? In fact, this is the same social mortgage, but is intended to provide young families with their own living space. The age limit for newlyweds to be classified in this category is up to 35 years. Here, the mortgage terms themselves are not preferential, and assistance is expressed in the provision of state subsidies and the opportunity to use maternity capital.

Newlyweds can even take advantage of a standard type of home mortgage lending. If the living space where the family is registered does not meet the minimum acceptable standards per person, then a state subsidy may be available. The amount issued varies from 30 to 35% of the standard cost of purchased square meters.

Military mortgage

Contract military personnel who are participants in a special savings mortgage lending program designed for military personnel can apply for this type of mortgage loan. What is a mortgage for the military? Within the framework of the NIS program, certain amounts are regularly received and indexed into the serviceman’s account. When the contract expires, a person can use the accumulated funds to purchase housing, paying off the down payment or part of the mortgage loan.

The mortgage is issued for a maximum of 25 years. By the end of this period, the soldier must be no more than 45 years old. The average percentage is about 12.5, the largest amount is 2,400,000 rubles.

Part of the debt can be repaid with maternity capital or through a preferential consumer loan received additionally.

What lending conditions do banks offer?

A financial institution issues loans only if certain conditions are met:

1. The minimum loan amount is from 300,000 to 600,000 rubles.
2. The maximum amount should not exceed 80% of the valuation of the collateral property. Many banks set a limit on the issuance of funds, usually from 20,000,000 to 60,000,000 rubles.
3. The loan term is up to 30 years.
4. Down payment - from 10-15%.
5. Collateral in the form of purchased real estate;
6. Mandatory insurance of collateral property.
7. Debt repayment is made by authentic payments.
8. The application review period is three to five working days.

Depending on the bank, the conditions for issuing funds may differ slightly from each other. Thus, the maximum possible loan amount at BINBANK cannot exceed 20,000,000 rubles, and as a down payment it is enough to make an amount of only 10%.

What you need to know when taking out a mortgage

If you intend to enter into an agreement to purchase a home on credit, you need to know about the advantages and disadvantages. There are 3 key factors for you - size, term, rate. The benefits are as follows:

1. The issue of housing or other purchase is resolved promptly.
2. Preferential mortgage agreements are economically beneficial.
3. A reliable investment, because if real estate is purchased, it tends to rise in price.

Disadvantages of a mortgage:

1. The owner has limited rights. Until the debt is repaid, he cannot do anything without the permission of the creditor.
2. A large overpayment, the initial cost of housing or other property increases almost 2 times at the time of repayment of the debt.
3. Payment of monthly installments over a long period of time.
4. Impossible, for some potential borrowers, requirements from financial institutions.
5. There is a constant threat of force majeure, in which real estate can be lost.

Having paid off the debt in full, do not forget to make sure that the bank returns the collateral to you officially in accordance with the agreement.

Main stages of mortgage lending

The process of purchasing residential space using bank funds includes several stages:

1. Gathering the necessary information about possible options for mortgage programs.
2. Submitting the established set of documents to the credit institution and checking them by the bank.
3. Making a decision on the borrower. Loan approval is valid for three months.
4. Finding a suitable apartment option.
5. Checking the property for legal purity.
6. Valuation of residential premises.
7. Completing the transaction (signing the contract, paying for insurance).
8. Registration of purchase with the Federal Reserve System.
9. Receive documents confirming your right to the purchased property.

The interesting thing is that no one will give you the borrowed money, unless you take it to a safe deposit box where it will be stored until the registration of ownership rights is completed and the document is submitted to the bank. After which the money will be transferred to the seller for legal use. Although, in some places now a mortgage is issued with the issuance of part of the funds in cash.

Is it easy to get approval

Banks do not approve a mortgage for the purchase of an apartment to everyone who applies. The housing purchased through a banking institution by the client and the person’s credit history are carefully checked.

Anyone who has had untimely repaid loans from any credit institution will not receive approval. The presence of outstanding fines or debts to the budget will also have a negative impact. It is difficult to get approval with low income. Knowing what a home mortgage is, you need to have an official source of income. Another mandatory requirement will be apartment insurance.

Types of mortgage programs

Due to the great competition in the housing market, banks are full of mortgage programs, which are classified according to different principles, for example:

• Purpose of lending;
• The target audience;
• Availability of co-borrowers;
• Loan currency;
• Fixed or floating rate;
• Type of property;
• Method for calculating monthly payments, etc.

The most important criterion for classifying a mortgage divides it into two branches: residential mortgages and commercial mortgages. The latter is not so developed in Russia, since the acquisition of commercial property is associated with many risks.

In turn, housing mortgage schemes have been operating in our country for 15 years; many banks have standardized mortgage offers and offer many ready-made programs: standard mortgage, social mortgage, mortgage for military personnel.

What documents will be needed?

When applying for a mortgage, it is important to know what it is, but it is no less important to understand what documents will be needed. The basic list of documents for obtaining a mortgage loan looks like this:

• Statement. It can be filled out either on site at a bank branch or in advance by downloading from the official website of the credit institution.
• Bank questionnaire - different banks will look different.
• A copy of the applicant’s passport (the original will need to be presented for verification).
• A copy of the TIN certificate.
• Photocopy of SNILS (certificate of pension insurance in the form of a green laminated card).
• For men of military age - a copy of the military ID.
• If the applicant is married, documents confirming this, as well as a marriage contract, if available.
• Birth certificates of children, if available.
• Documents about the applicant’s education - diplomas, certificates, etc.
• Papers confirming the level of income at the place of work and from other sources - alimony, funds from the rental of real estate, financial assistance, etc.

Rarely does a bank limit itself to such a modest list. As a rule, something else is added to it that is needed for a mortgage, which means that additional papers will increase the chances of obtaining a loan.

Possible options:

• Passports of all immediate family members, death certificates for those who have already passed on to the other world.
• Copies of pension certificates and certificates of the amount of pension payments for disabled elderly relatives (parents, grandparents).
• Certificate from the passport office confirming registration at the place of residence.

Having any valuable property (other real estate, a car or other vehicle, etc.) will be a big advantage, increasing the likelihood of getting a mortgage approved for the required amount. So, the already extensive list of papers should include documents confirming the right of ownership of such property - a certificate of ownership, a purchase and sale agreement, extracts from the relevant registers, etc. If you have accounts in other banks, you will need to provide statements of the movement of funds on them.

Some credit institutions may request receipts for payment of utility bills at the current place of residence to assess the client's solvency and reliability. For entrepreneurs, the list is supplemented with the statutory documents of their enterprises, accounting statements and other papers confirming that the business is profitable and developing quite steadily.

If maternity capital funds are used to make the first payment or pay part of the loan, then a certificate for it will be added to the list of documents. In addition, you will need to obtain a certificate from the Pension Fund branch indicating the balance of this capital.

What does it mean in simple words?

There are two main understandings of mortgage lending. For some people, a mortgage is a simple, profitable way to purchase a home with a convenient monthly payment method. In the personal opinion of others, it is a debt hole from which it is almost impossible to get out. Both of these definitions have a basis in reality.

Combining all the pros and cons, we can say that a mortgage can be either a good choice or not. It all depends on the choice of banking organization and lending program, which directly affect the loan term and the interest rate.

What forms are there?

Knowing the forms of mortgage lending can significantly reduce risks and also simplify the process. Three main forms can be distinguished:

1. Credit under a purchase and sale agreement. It is the most common form of lending. The property in this case must be fully equipped and ready for use.
2. Mortgage for housing under construction in an apartment building. Due to the increased risks, the conditions when choosing this form will be more severe: loan terms are noticeably reduced, interest rates and the minimum contribution increase.
3. Loan secured by individual housing under construction. The least popular form, since banks have higher requirements for this type of real estate.

It is advisable to study all the details and features of the loan form before signing the agreement - in this case, you can avoid further difficulties.

Terms, interest and other nuances

When applying for a mortgage for an apartment, it is important to remember that there is an age limit for obtaining one. They will definitely not give a housing loan to someone who is under 21 years old. The age limit for those who will be approved for a mortgage varies. A mortgage loan for the purchase of a house or apartment is long-term and can be repaid over 30 years. The bank takes into account the client's provision of funds to repay obligations.

The higher the down payment, the more favorable the repayment terms will be. When drawing up an agreement, it is important to pay attention to the order of repayment of payments and the possibility of repaying the debt ahead of schedule. The opportunity to take advantage of deferred payment and the conditions for its provision are immediately discussed.

Partial obligations to the bank can be repaid using maternity capital funds. Special conditions for providing loans to military personnel.

Thanks to government support, interest rates on purchasing an apartment in new buildings are lower than on secondary market housing. This is also worth considering. In simple terms, such a mortgage will have more favorable and attractive conditions.

You should always remember that refusal of approval from one bank does not mean that obtaining a loan from another is impossible. You can apply for approval to several banks, ultimately choosing the best option for yourself. The desire to have your own corner can become a reality. The main thing is to approach the choice wisely, armed with all the necessary information, understanding what it is - a mortgage - and how to work with it competently.

The principle of mortgage: how it works

Since mortgages are a large segment of the real estate market, where large sums are dealt with, even with a stable average income, the client will not be given a loan for the amount necessary to purchase real estate. A simple solution in this case is to pledge to the bank the property purchased with the money issued by this bank.

If the client violates the terms of the mortgage agreement, that is, does not pay the installments on time, then the mortgaged property becomes entirely the property of the bank: this way the bank is guaranteed to return its money. Taking into account the fact that real estate is only becoming more expensive, the bank wins in any case.

Like applying for any loan from a bank, a mortgage requires collecting a large number of documents, the list of which will vary depending on the chosen mortgage program, as well as on the bank that is processing the transaction: one bank will request some documents, another will require additional papers. Therefore, first of all, you need to select a bank, and then check with it for the list of required documents.