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Mortgage or bank guarantee?

The bank granting a mortgage takes a risk. To protect itself, it requires a financial guarantee . It can be a bond, mortgage (when the loan is intended to finance the construction of the property) or a lender's lien (if the loan is for the acquisition of property).

The lender's lien, which has the same effects as the mortgage has an advantage since it is not subject to land registration tax . It is less expensive for the borrower.

  • The bank guarantee

    • A bank guarantee is provided by finance companies, insurance companies or professional mutual funds.

    • The financial conditions vary from one body to another and depend on the sum borrowed, repayment instalment amounts and the borrower's age.

    • The sums paid by the borrower correspond to the cost of the deposit . Most companies refund the sums paid at the end of the contract but because the sums are not revalued, they are usually out of line with current values after twenty years' credit.

    • If three or four repayments are missed, the guarantor pays the lender and simultaneously tries to find amicable solutions to the defaulting problem. If no solution can be found, the guarantor first registers a mortgage by court order at the borrower's expense before seizing the property and selling it to get its money back. This system is very expensive for the borrower.

  • The mortgage

    • The mortgage or property lien charge is a traditional guarantee granted by a borrower against a property.

    • It must be drawn up by a notaire and published at the land registry office.

    • This mortgage registration is valid for the entire duration of the loan plus 1 year, but may not exceed 50 years.

    • However, the mortgage becomes void on payment of the last repayment of the loan. At the end of the additional year, the entry on the register is erased; no fee is payable and no further formalities are required.

    • The borrower can sell the property before the end of the credit. In this case, it must obtain the raised hand of the mortgage..

    • In the event of the borrower defaulting on payments, if no amicable solution can be found, the creditor may claim under the guarantee by seizing and selling the property.

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