To obtain a mortgage, any borrower must meet certain drastic conditions – such as contracting specific insurance. But he must also guarantee his loan so that the bank is protected against any risk of default in the repayment of the amount due. There are several types of guarantees, including the mortgage loan endorsed by a surety company.
What is a mortgage loan guarantee?
You already know the joint guarantee – when a natural person guarantees for you? Here is the mortgage guarantee: the system is identical, except that here, it is a specialized financial organization – a surety company – which plays the role of the guarantor. And who bears the risk of borrower default.
Formerly little used, the mortgage guarantee is more and more often accepted by the banks as a guarantee in the event of taking out a mortgage. This solution replaces the classic mortgage (the most commonly accepted guarantee) and its little sister, the privilege registration of money lender.
If banks are now more attentive to this form of guarantee, it is because it has a notable advantage: in the event of a repayment problem, they do not need to manage a dispute with the borrower – it is the organization that automatically takes over. In return, the choice of surety company must be approved by the bank.
How does a bonding company work?
An organization practicing the mortgage loan guarantee works through the mutualisation of risks. In exchange for fees paid by the borrower (a percentage of the desired amount, variable depending on the total amount), the surety company undertakes to take over in the event of default by the subscriber, if the latter is not no longer able to repay his monthly payments.
The mortgage loan guarantee costs consist of a “contribution” divided between:
- A commission which is used to remunerate the guarantor;
- An amount used to supplement the Mutual Guarantee Fund, which the borrower can recover (in whole or in part) once the mortgage has been settled, under certain conditions.
The mortgage loan guarantee applies to any type of property: new or old, already built or purchased off plan.
How much does the mortgage loan guarantee cost?
The mortgage loan guarantee by a specialized organization is particularly interesting for the borrower. This guarantee does not require the establishment of a notarial deed and only incurs one-off costs, to be paid when the funds are released. It should be added that in the event of early repayment or sale of the property in the course of credit, the mortgage loan guarantee does not incur release costs (as is the case for the mortgage and the IPPD).
At the end of the loan, the Mutual Guarantee Fund can repay you part or all of the amount deposited – depending on your history (whether you were a good borrower, or not!).
However, the initial costs claimed by the surety company are generally higher than in the case of a mortgage guarantee. Count between 0.5 and 1.3% for $ 150,000 borrowed.
Which organization should I contact?
If you are looking for an organization that can play the role of mortgage guarantee, you are spoiled for choice. For example :
- Housing Credit;
- Surety companies affiliated with banks
- Some mutuals offer mortgage loan guarantees to their beneficiaries, particularly in the civil service (this is called the civil guarantee – a guarantee particularly advantageous for those who are entitled to it).
Please note: some banks impose their surety company on borrowers, with often higher rates. Know that you are not obliged to accept and that you are entitled to offer your own mortgage loan guarantee.