A mortgage loan is the typical financing contract within our legal system and almost always one of the parties is a bank. To obtain a home loan it is sufficient to approach a bank and provide the documentation it requests. Those applying for a mortgage loan who need clarification can also consult, in addition to the bank, various consumer associations and their usual notary who can furnish all the advice and information needed for the operation. It is not necessary, on the other hand, to make use of a credit intermediary (e.g. a credit broker or financial asset manager): if this occurs, the costs of the operation are destined to grow, the broker’s fee sometimes being expressed as a percentage of the amount borrowed. Common sense and prudence are necessary in applying for a home loan or other financing in general. The use of credit is now common for the purchase of motor vehicles or non-durable, sometimes inessential, goods. Also the use of electronic means of payment often does not allow one to fully assess a dangerous decline in one’s savings. One must therefore be fully aware that the accumulation of instalments that have been inadequately weighed up at the time the commitments were made, could render the periodic payments out of real family income unsustainable, thus in some cases causing serious financial difficulties with unpredictable consequences. Sometimes it is wiser to give up, limit or postpone a purchase. Good advice and the exchange of views with an expert can help ensure one’s future serenity. The role of the notary is important to the granting of home loans. His participation is required by law because a mortgage is recorded in the land register. The notary, in addition to checking the validity of the contract and accepting responsibility toward the bank as to the ownership and freedom from encumbrance of the property denominated as security, checks in the contract for the existence of any unfair terms detrimental to the client, prevents fraud that might harm the bank or the client and, by virtue of his experience and training, can advise the borrower regarding the best solutions, pointing out provisions that could lead to an imbalance in the contractual terms. The practice of contacting the notary early on is really crucial, because the notary has less room for manoeuvre if problems are raised when contractual deadlines are imminent and when the buyer of the property, to meet his commitments, absolutely must somehow and without delay obtain release of the funds. It should be remembered also that prior intervention of the notary in contracts of this kind is in effect an opportunity to obtain legal assistance that is routinely included in the total cost of the deed. A mortgage loan normally accompanies the purchase of real estate (a so-called “fondiario” loan, i.e. secured by real estate, where the amount is not more than 80% of the market value of the mortgaged property), so that it very frequently happens that the deed of sale and the mortgage are signed in front of the notary simultaneously. In this case, too, it is useful to contact the notary well in advance, so as to have all the information necessary for the procedures to be followed with the bank, especially with regard to mode of delivery of the money, which is not always at the time the mortgage deed is signed.
The right to be informed.
Consumers, according to the Consumer Code (Legislative Decree 206/2005), have a genuine right to full information – in clear and understandable terms – about the home loan agreement, a principle that, from 1 October 2003 pursuant to a resolution of the C.I.C.R. (Interministerial Committee for Credit and Savings), is contained in new national rules on the transparency of banking transactions and services set out in special provisions issued by the Bank of Italy. As a result of these rules, banks make available to their customers, in premises open to the public, an information sheet which contains, among other things, the economic conditions of the transaction and the main contract clauses that regulate it. The customer is thus able to make assessments more easily and above all to compare the loan terms proposed by the various banks so as to choose the cheapest offer. Under these provisions the customer (borrower), having picked a lending bank, then has the right to receive from it, before the signing of the contract, a copy of the contract in the form in which it is to be signed (i.e. a pro forma contract) for an informed evaluation of its content. The furnishing of this copy does not bind the parties to conclude the contract. Timely exercise of this right is highly recommended, so that the client, after consultation with a trusted notary or with consumer associations, may request any appropriate changes and corrections to meet the specific case. Attached to the contract is an epitome document aimed at providing the customer, in the clearest possible terms, with a summary of the most important conditions of the contract. If there is difficulty in understanding these documents the Bank and the notary stand ready to give information and explanations.
The Interest Rate.
The rate is certainly one of the main elements to be considered when assessing a home loan. The interest rate can be fixed, when it agreed that it will remain unchanged for the duration of the mortgage, or variable, when it is determined with reference to changing parameters that must be defined with the requirement of objectivity and impartiality. The choice between a fixed or floating rate is the substantive question, where the borrower has full discretion, assuming full responsibility for the risk. The rate of a variable mortgage is - normally - lower than that of a fixed-rate mortgage, but entails the risk that the rate may rise over time. Apart from the primary split between fixed-rate mortgages and adjustable-rate mortgages, there are different types of contracts in which those characteristics may merge or alternate: for example, the term mixed-rate mortgage means the borrower has the option, as stipulated in the contract, to change from fixed to floating interest rate or vice versa; a capped mortgage has a variable rate which however can never exceed a certain predefined maximum; then there are variable-rate mortgages with fixed instalments where any increase or decrease in the benchmark rate automatically extends or shortens the life of the contract; and so forth. In order to have a clear picture of the obligations to be met, the Bank provides an amortisation schedule. This document consists of a table containing details of all the instalments to be paid (split between principal and interest) and due dates, thus allowing for clearer planning of the family budget. The generally short period during which the borrower is committed to interest-only and not capital repayments is called pre-amortisation.