When buying real estate with a credit, the bank asks you for a guarantee on the property in question. The mortgage loan guarantee mechanism thus allows the lending institution to protect itself and, in the event of the repayment of monthly payments by the borrower, to recover the funds advanced. These protections also incur costs. But they are mandatory when you want to obtain a mortgage. Let’s see more precisely what it is.
What is the purpose of the home loan guarantee?
The home loan guarantee is a mechanism put in place by all banks when agreeing to a loan to buy real estate. Both legal and commercial, this mechanism aims to protect the lending institution against credit risks: in the event of non-repayment of all or part of the loan by the subscriber, the bank can rely on this guarantee to recover what remains of the amount due.
Thus, the home loan guarantee system is similar to a form of guarantee: in one way or another, this guarantee secures the lender by ensuring that he can recover his stake if ever the borrower is in default situation.
Taking out protection nevertheless incurs mortgage loan guarantee costs which must be added to the total cost of the loan, in the same way as borrower insurance.
The different forms of guarantee
There are several possibilities for a home loan guarantee.
Conventional system of guarantee of mortgage, the mortgage backs the good payment of the debt to a real estate, without dispossessing the owner. In the event that you have to stop paying your monthly payments, the mortgage gives the bank (your creditor) the opportunity to seize the property in question and have it sold in court in order to recover all or part of its stake.
The mortgage is granted voluntarily by the borrower. It requires a signature of a deed before a notary as well as registration with the mortgage conservation office – today called “land advertising services”.
The surety company
It is possible to obtain a mortgage loan guarantee by presenting a bank guarantee. Concretely, it is an organization that replaces the lending institution so as to bear the risks of non-payment by the borrower. The surety guarantees the bank, not the underwriter, but has many advantages for both parties.
In exchange for this guarantee, the borrower pays a contribution to a mutual guarantee fund which depends on the amount of the mortgage.
The joint guarantee
In the context of the mortgage guarantee, the joint guarantee works in the same way as the guarantor for a consumer credit request: it is a natural person who acts as a surety for the borrower. The joint surety is however rarely used for a mortgage, except in the case of a loan made by a legal person, in which case all the partners who participate in the purchase of the real estate must agree to be a surety.
The official surety
The civil servant bond is a type of bond which, as its name suggests, is only offered to public service employees, as well as to certain specific professions (civil servants). In some cases, it exempts from any mortgage loan guarantee fees.
Reduce mortgage loan guarantee costs
Mortgage guarantee costs can weigh heavily on your budget, especially when you have to add them to other ancillary costs (application fees, cost of mortgage insurance, etc.).
Thus, the charges occasioned by the drafting of deeds before a notary concerning a mortgage guarantee (mortgage, IPPD) fall on the borrower, as do the costs of registration with the mortgage preservation office. Be careful, because these costs are not negligible: they can represent on average 2% of the sum borrowed!
For example, for a loan of $ 150,000, your costs may amount to:
- Almost 2,500 $ for the mortgage;
- Over $ 1,000 for registration fees in IPPD;
- Almost $ 2,000 for the deposit costs, knowing that part of this sum can be reimbursed by the guarantee organization (cost reduced by half).
To reduce these mortgage loan guarantee costs, it is therefore recommended to:
- Privilege the option of the surety: the surety by a specialized body, more and more practiced within the framework of the real estate loans, does not require the signature of an authentic act at the notary and only causes one-off costs, to pay at the time of release of funds, for a sum which can range from 150 to 600 $ on average. To this must however be added a contribution to the Mutual Guarantee Fund up to 0.8% of the borrowed capital. At the end of the loan, if you have been a good borrower, the FMG can reimburse you for a substantial part of your costs.
- Use your borrower profile to negotiate either the mortgage loan guarantee costs or some of the additional costs (the result will always be the payment of a lower total amount). Use a simulator to assess all of the contingencies that will lower the total cost.
- Entrust the comparison of offers and negotiation to a real estate broker, who will be able to find you the best borrowing conditions and a mortgage guarantee
Do not hesitate to use all the levers in your possession to take out the most advantageous and cheapest guarantee!