A lot of people are looking for information on the mortgage loan in the network, thinking that such is the case in Polish law. The truth is that there is no such law yet, but it may change in the future. Many of the entries published so far on my blog refer to the mortgage loan. Today’s general purpose is to systematize to people interested in this subject the most important issues related to this subject.
A mortgage is any loan secured by a mortgage.
A mortgage loan in a broad sense is really any loan granted by a bank whose repayment has been secured by a mortgage. So it will be both a loan granted to the borrower to finance the purchase of real estate, as well as a different purpose, when its final security is a mortgage. In practice, the former constitute the majority and they create the mortgage market, which can often be heard or read in the media.
There are two basic types of such a loan. First, let’s call it an ordinary mortgage, where the goal is to buy a house or flat by the borrower, and the funds deposited by the bank are transferred one time and directly to the seller’s account. The borrower presents to the bank relevant documents (in particular a notarial deed), constituting a basis for the bank to make a transfer to the indicated seller’s account. In no case does the customer receive money at his disposal or on his account.
The second type is a construction and mortgage loan intended for financing the construction and purchase of real estate on the primary market (from a developer) or for an independent construction of a house. The money is disbursed in tranches according to an agreed schedule taking into account the progress of construction works. Before the payment of the next tranche, the borrower must prove that he has spent the money from the previous tranche in accordance with the plan agreed with the bank. Standards for acquiring residential investments from developers are defined by the so-called development act (act on the protection of the rights of a buyer of a flat or a single-family house of 16 September 2011). According to it, the developer is obliged to provide purchasers with security measures in the form of a residential escrow account. You will learn more about this from here: Residential escrow account in the property development act.
You can also distinguish a mortgage for a refinance is incurred after it previously contracted to pay the mortgage. As a rule, this is the case when refinancing credit conditions are sufficiently more favorable than the existing loan would be profitable.
Due to the loan currency, you can talk about zloty and currency loans. A foreign currency loan is a loan contracted in or denominated in a foreign currency, where the amount of debt is converted into such currency. The zloty of foreign currency loans is currently on the market.
There is no separate mortgage loan act.
As I mentioned at the outset, there is currently no separate act that would comprehensively regulate a mortgage loan based on consumer credit. A mortgage, like any loan, is primarily subject to the provisions of the Banking Law and the Civil Code. In addition, some provisions of the Consumer Credit Act apply to mortgage loans granted to consumers. However, the mortgage, in the current legal status, is not a consumer loan even if it is lower than the equivalent of PLN 255 550 (ceiling adopted for consumer loans) and is granted to the consumer. However, several provisions of the Consumer Credit Act apply to mortgages without a relative amount. They concern:
- information obligations towards the borrower before concluding a consumer credit agreement with him,
- the contents of the loan agreement, i.e. what terms should the mortgage contract contain,
- anti – spread solutions,
- free credit sanction.
Creditworthiness is the key.
Before the bank grants a loan, it will first examine the creditworthiness of the potential borrower in connection with the credit application submitted by the bank. Creditworthiness is the ability to repay a loan with interest on dates specified in the contract. Banks can assess the creditworthiness of customers in a variety of ways and the amount of credit it can receive depends largely on the bank’s situation, as well as on the risk that the bank accepts. Nevertheless, currently banks do not have too much room for mortgage loans, as they have to comply with the guidelines of the Polish Financial Supervision Authority included in the so-called Recommendation S. This recommendation is a set of good practices for banks, which should be used with mortgage loans. It deals with many issues related to risk analysis when granting such loans. I wrote about it on the blog: Recommendation S and creditworthiness.
The bank has the right to examine the creditworthiness of the borrower also when paying the mortgage. What is equally important, when taking a loan from the bank, the borrower undertakes to use it on the terms specified in the contract. During the term of the loan agreement, the bank has the right to control the borrower’s compliance with these conditions. Failure to meet the terms of the loan will result in failure to comply with any conditions (clauses) included in the credit agreement. In particular, failure to meet the terms of the loan will cease to repay the loan in accordance with the agreed schedule. Failure to meet the conditions for granting the loan may be the basis for termination of the loan by the bank. More here: When can the Bank terminate the loan agreement?
You are responsible for mortgage repayment with all your assets.
For the repayment of a mortgage contract, the borrower is liable for all his assets. Such a loan is secured by a mortgage established on the property, the purchase of which was financed with loan money, but if the loan is not repaid, the bank may also carry out other assets taking the loan, eg other real estate, movable property, savings, contract income, or from other sources.
If a mortgage has been jointly drawn by two or more people, then the co-borrowers are jointly and severally liable for repayment. This means that the bank may demand repayment of the entire debt from all of them jointly or separately. If the loan was taken jointly by the spouses, and later a divorce took place, their joint and several liability for the repayment of the loan continues. Despite the fact that after the divorce between the former spouses, the separation of property arises, they are joint and several debtors for the loan they have taken together as a marriage. You can find more on this topic here: A shared mortgage and a divorce.
By borrowing a mortgage, the borrower submits to the bank a written statement on submission to enforcement. The statement specifies the amount to which the bank may issue a bank enforcement title, as well as the date by which it may apply to the court for the enforcement clause. The bank enforcement order is the basis for the enforcement of the bank by the bailiff in the event of non-payment of the loan. I wrote about it here: Bank enforcement title – how does it work?
It has been assumed that a flat or house purchased for money coming from a loan is owned by the bank. From a legal point of view, this is not true. The owner of the real estate – if all the necessary formalities required to transfer or establish the ownership right have been fulfilled – the borrower is. The Bank, due to the establishment of a mortgage on its behalf, obtains a certain scope of rights in relation to the loan financed by the real estate. He has the right to settle his claims if he fails to pay the loan. This is done in accordance with the enforcement procedure set out in the Code of Civil Procedure. As a result, the property may be auctioned off and the borrower deprived of ownership of the property.
Mortgage on behalf of the bank.
As I mentioned, the mortgage is called because it is secured by a mortgage. A mortgage can be established on real property, i.e. land, buildings or independent premises, if it can constitute a separate object of ownership. The bank can satisfy itself with the encumbered property regardless of who became its owner after the mortgage was established. Such change does not affect the existence and effectiveness of the mortgage. The new owner becomes by law the so-called the mortgage debtor of the bank. The mortgage secures the loan to a specified sum of money. In addition to loan capital, it also secures claims for interest, costs of proceedings and other claims for side-effects, but they must be clearly mentioned in the document which forms the basis for entering the mortgage in the land and mortgage register. The mortgage is entered in section IV of the land and mortgage register.
A mortgage on behalf of a bank to secure a loan may be set up in an easier manner than a mortgage for other creditors. In accordance with the Banking Law, a document issued by the bank stating the loan, its interest rate and repayment terms are sufficient for this. It provides the basis for entering a mortgage in the land and mortgage register. In addition to the bank’s statement, the property owner must submit a written statement on the establishment of a mortgage for the bank. So when setting up a bank mortgage you do not need to go to a notary public and draw up a notarial deed. You can learn more about how the mortgage works here: Contractual mortgage as collateral for a loan.
What is always worth remembering?
Above all, carefully read and analyze the entire loan agreement before signing it. If you have doubts about your records or do not understand them, ask bank employees for clarification or consult a lawyer. This recommendation also applies to the bank regulations that will be applied to the loan agreement.
When taking out a mortgage, one should also pay close attention to its costs, in particular the amount and method of calculating the interest, taking into account the bank’s margin. As far as the interest rate on the loan is concerned, in general terms how to determine it in the loan agreement can be different. In most-used mortgage loan agreements, a variable interest rate is based on the Jabank rate (for loans in PLN) or Nibore or Interbank (for foreign currency loans) increased by the bank’s margin. The cost of the loan is also the commission and fees included in the table of fees. It may turn out that the loan at the time of incurring has very attractive conditions, but at the stage of repayment and service is quite expensive. You should check what fees the bank reserves for making an annex to the loan agreement, for converting the loan, for property valuation, issuing a certificate of repayment or other activities. Also make sure that the loan agreement allows early repayment of the loan, and if so, on what terms. It should also be borne in mind what interest for the delay in repayment of the loan the bank has stipulated in the contract.
It is also worth making sure that the loan agreement allows a solution called credit holidays. It boils down to the possibility of temporary, eg a three-month break in the obligation to repay the loan. This may be convenient for unplanned expenses in the home budget when difficulties arise in reconciling them with repayment of the loan installment.
In the case of loans granted for the purchase of a flat or house on the primary market, where the property does not yet have a land and mortgage register, banks may use an increased loan margin or require additional insurance until the mortgage is established and entered. The mortgage is the final security for the loan, but until the bank establishes it, the bank may also request the establishment of temporary securities.
The bank may also require an insurance contract from a low borrower’s own contribution and purchase of life insurance or loss of employment. Always check the terms and conditions of such insurance carefully.
The same applies to other products that the bank can offer with a mortgage loan in the so-called tied sales. It happens that the attractive bank’s margin for granting the loan is available only to clients who will open a bank account or apply for a credit card.
As I wrote, the provisions of the Banking Law and the Civil Code apply to the mortgage loan. All publications on this blog included in the category of mortgage or marked with the same tag refer to such loans.