The guarantee of a mortgage
January 16, 2019
Mortgage , Privilege of lender of money (PPD) , surety ( Home loan for example), pledge … The bank that will lend you funds will necessarily ask you what is called a guarantee . Whatever the selected one, they all have the same objective: Guarantee your mortgage for the bank; in other words, the bank makes sure that it can recover its money if you are no longer able to pay the monthly loan.
To guarantee a mortgage, a bank has the choice to set up a mortgage, a PPD, a bond or, more rarely, to make a pledge.
Here’s all you need to know about collateral for your home loan.
- 1 The mortgage
- 1.1 The raised hand of the mortgage
- 2 The Lender of Money (PPD) Privilege
- 3 Mutual guarantee
- 4 The pledge
- 5 Comparative Price Guarantees
- 6 Comparative guarantees
The mortgage is one of the most used guarantees by banks. Indeed, it confers on banks using a “right of preference” on mortgaged real estate. This right will allow the bank to sell the asset in the event of default by the borrower and to be paid first. If the proceeds of the sale are not enough to repay the loan, then the borrower must finish repaying the outstanding balance.
The mortgage is a real security , that is to say that it relates to the real estate. It is constituted by an authentic act, ie at the notary’s.
If the bank usually has a choice in the collateral, the mortgage remains is a mandatory collateral for transactions such as treaty loans and social home loan.
The mortgage ends either:
- 1 year after the end of the secured real estate loan
- on sale of real estate in the course of loan. In this case, the borrower must generally carry out a mortgage waiver
Good to know: The warranty rate is not a “negotiable” element with your banker. Focus on the rate and insurance!
The raised hand of the mortgage
With the raised hand, the mortgage can be closed before the end of the term, ie, before the year following the end of the loan, or on the sale of the real estate.
The raised hand has a cost.
Count about € 620 if there is € 100,000 remaining capital on your loan or € 860 for € 200,000 CRD.
The privilege of money lender (PPD)
The PPD ( lien of money lender ) is, like the mortgage, a security interest appreciated by the banks because it allows a better guarantee of the mortgage in comparison with the mortgage. For borrowers, it is also a good omen since less expensive. Indeed, no property tax to predict.
Good to know: The PPD can only be used for old housing. Forget it for constructions and purchase off-plan.
The PPD can guarantee only the purchase price of the property but it is systematically put in place when it is possible for the bank (in replacement of the mortgage).
The PPD is governed by the same exit rules as the mortgage. You will therefore have to pay a free hand if you resell your property before the end of the loan, or if you want to extinguish the guarantee at the end of the loan, without waiting for 1 year.
The mutual guarantee
Banks are increasingly using mutual guarantees to secure mortgage loans taken out by their clients. They rely on outside companies to guarantee the loan.
The advantage is twofold:
- For the bank, it’s a security. It is paid by the surety as soon as the borrower is in default.
- For the borrower, a lower cost than real collateral.
The operation of the mutual guarantee is different from the mortgage. The borrower will pay a guarantee fee when setting up the loan. He will generally be reimbursed for a portion at the end of the loan (depending on the mutual guarantee used). Hence a relatively low final cost compared to the mortgage.
The constraint of a mutual guarantee : The organization studies cases on a case by case basis. Suffice to say that it is better to have a good situation (CDI or equivalent, contribution, debt ratio under 33%) under penalty of being denied the deposit. In this case, the bank may still choose to take a mortgage.
The cost of a mutual guarantee varies according to … the deposit chosen: The most used mutual guarantee is Crédit Logement . But each bank has its own organization ( SACCEF for the Banque Populaire banks and Caisse d’Epargne, CASDEN for Banque Populaire (reserved for civil servants), CAMCA for Crédit Agricole, CMH for Crédit Mutuel, etc.). Each guarantee has its own fee schedule.
The pledge is for the borrower to use as collateral a portion of his savings placed on a security medium such as life insurance, a PEA, a PEE or shares of companies. It avoids the warranty costs and the operation is done under private seal.
In this case, the securities are frozen and managed by the bank during the loan period. A specific account is opened within the bank. The borrower can still manage his portfolio of securities during the loan.
Comparative Price Guarantees
For the loan of a real estate project from a purchase in the former to € 200,000 + € 15,710 of notary fees to which the borrower would put € 20,000 contribution.
|Mortgage||No specific conditions for the agreement, it is the bank that decides.||High cost
Hand-raised fee in case of resale
|Privilege of the Lender of Deniers||No specific conditions for the agreement, it is the bank that decides.
Cheaper than the mortgage
|Hand-raised fee in case of resale
Only on old housing
Limited to the selling price of the property
|Mutual guarantee||No release fees.
Generally less expensive (in the long term) than the actual security guarantees.
|High cost to set up.
Generally, specific strict conditions are to be respected by the borrower.
|pledge||Funds are not available for other projects||Requires to have a significant heritage|