Mortgage – how does it work?


Did you find the right property for you or do you want to renovate your home? In order to have the necessary liquidity to realize this dream, it is necessary to finance it and have a certain amount of capital. A mortgage is increasingly being used for this purpose.

How does a mortgage work?

How does a mortgage work?

A mortgage is a loan to finance the purchase and / or renovation of a property. The property is the guarantee for the bank. The beneficiary of a mortgage transfers the rights of the property to the bank, but receives cash consideration. The mortgage is granted up to 80% of the value of the property . The remaining amount or 20% must be paid by those who want access to the mortgage, in addition to utilities and taxes

Interest rate and term

Interest rate and term

When assessing a mortgage in the country, two basic parameters need to be taken seriously:

  • the interest rate
  • the term of the mortgage

The interest rate

The interest rate

An interest rate refers to the percentage of interest on a loan and the amount of remuneration owed to the lender, in other words, the “rental price of the money”.

There are two types of interest rates, with the option to choose between a fixed rate mortgage that is set at the start of the contract and is not subject to subsequent changes, and between a variable rate hypothesis that depends on fluctuations in the financial market.

The fixed interest rate gives the signatory a fixed and constant rate for the entire period and knowledge of the total amount to be repaid from the beginning. The fixed-rate mortgage offers unchanged interest rates for the entire term. This enables a certain degree of planning security and protection against rising rates.

The variable interest rate, on the other hand, follows changes in the money market and is exposed to fluctuations in interest rates, which makes it particularly advantageous when these are low or falling. The variable rate mortgage is based on the ability to lower inflation over time, which leads to savings. However, this choice involves a greater propensity for risk. In fact, there is also a possibility that the opposite picture will occur and consequently the rates will be increased.

You will find the interest rate mortgage in the country. This type of mortgage follows the change in the interest rate in dollars, an interest rate for short-term money in dollars. The interest rate is used on banks’ stock exchanges and reflects the general price level for short-term money in dollars. It is possible to open a interest rate mortgage at any time , whereby a specific term is set, during which the interest rate remains unchanged and the end of which is appropriate to the current money market situation (ie that of the interest rate in dollars). The interest rate consists of the interest rate in dollars and a fixed margin.

The term of the mortgage

The term of the mortgage

In the country, like in any other country, the duration of the mortgage is usually chosen by the customer on the basis of suitable calculations, which are used to determine which mortgage is the cheapest. The term usually varies from at least 3 months only for a variable interest rate up to a maximum of 25 years with the fixed interest rate.