Repayment of real estate loans

Posted by Margaret Nelson

Conditions of repayment of a mortgage

When signing the loan agreement, the borrower undertakes to repay his mortgage according to the terms and conditions of the loan offer sent to him. He must repay his loan in arrears, in accordance with the amortization schedule provided to him upon acceptance of the loan offer. The expiry date, also called calendar, of the payment of monthly payments is set each month in arrears. In most cases, this date can be chosen by the borrower.

The mortgage repayment may include an initial deferred period from the remittance of funds. It is limited to three months. Fees are usually charged as soon as the capital is released.

The clauses of the contract may provide for a change of maturity. Thus, the borrower has the possibility, according to the provisions annexed to the contract to modulate the maturities up or down. 
In both cases, a new depreciation schedule is established by the lender. Repayments are spread over a longer period of time in the case of a reduction in monthly payments, or for a shorter period if the borrower opts for an increase in maturity. Of course, this modulation must be accepted by the credit institution.

Procedures for early repayment

The repayment of a mortgage can be made at any time during the term of the loan. Indeed, the outstanding capital can be partially or totally paid back in advance. The choice of an early repayment is a good solution for an unexpected cash flow. But this operation is only interesting if it is carried out in the first years of repayment of a mortgage.

Prepayment fees for a mortgage

According to the Consumer Code, the compensation to be paid by the borrower at an early repayment must not exceed 6 months of interest or it must be limited to 3% of the outstanding capital. Depending on the terms of the loan agreement, the early partial repayment must not be less than 10% of the outstanding capital.

However, exceptions are planned. No compensation is due in the following cases:

  • Sale of the good because of professional transfer of the borrower or co-borrower;
  • Loss of employment of one of the borrowers;
  • Death of the borrower or co-borrower.

Of course, a proof is required by the lender.