Chapter 17: Mortgage Applications

Question 1

Mortgage loan

Answer 1

Similar to consumer loan but larger amounts and longer
* provision of collateral as security
* Interest rates are usually lower due to collateral
* approval is based on value of home and financial situation of borrower

Question 2

Value of home

Answer 2

Value of home serves as collateral
Valueation is drawn up by estate agend

**Valuation based on:
**
* Market value - sale value in current condition and current market
* Foreclosure sale value - estimate of proceeds from forced sale of property. Usually forced sale is usually lower than private sale, around 80%. by auction
* reinstatement value - estimate of construction cost if home has to be rebuilt e.g. after a fire

Question 3

Financial situation of borrower

Answer 3

Bank checks creditworthiness
* income high enough, called front-end ration (mortgage to gross income ratio)
* ongoing financial stability - front-end ratio includes fixed expenses
* Check BKR for financial obligations

Question 4

National Mortgage Guarentee

Answer 4

Consumer can apply for a national mortgage guarentee under NHG

If consumer runs into financial difficulties, credit provider get its money back. Only applicable for a max finance charge and home value

Question 5

Credit offer

Answer 5

Lender will draw up an offer based on info, includes term and costs, interest rate and repayment

No commission given to advisors by law

Question 6

Mortgage rights

Answer 6

Mortgage provides lender with security since they can sell the propery if needed

Lender priority to recover claim from sale

Question 7

Types of mortgage

Answer 7

• Fixed rate
• revolving
• bank

Question 8

Fixed rate mortgage

Answer 8

Loan agreement includes repayment schedule and integrated into the mortgage deed

At the end, right of mortgage will not have value

Has gone out of fashion

Question 9

Revolving mortgage

Answer 9

Consumer provides a right of mortgage independant of a loan

Used a s a security for current-account credit facilities - predetermined max debit balance

Right of mortgage will continue until credit has been repaid, new credit can be taken from same mortgage

Question 10

Bank mortgage

Answer 10

Linked to all of the claims that the credit provider has against the borrower

Serves as security for the payment