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Applying for a mortgage loan in Europe

We all dream of having our own house one day, starting a family, or providing a much more comfortable space to the family we have already. There are not many people that can afford to buy a house with their own finances, that is why many of us choose to apply for a mortgage loan.

What is a mortgage loan?

In essence, a mortgage loan is a loan designed to help you in the process of purchasing a house. This kind of loan is granted by a bank, building societies, or other types of lenders. A mortgage loan is mostly secured against your property.

In comparison with consumer credit, a mortgage loan has a smaller interest rate and a longer period of time in which you have to repay the loan.

In the situation in which you are unable to further pay your loan, banks (or other types of lenders you chose to take a mortgage loan from), have the right to seize your property and resell it in order to pay off the loan.

Lenders have the freedom to accept or decline your mortgage application. Before granting you a mortgage loan, lenders must evaluate your capacity of paying the loan back, also known as creditworthiness.

If you wish to apply for a mortgage loan in another country than the one you live in, keep in mind that lenders are very reluctant when it comes to this situation even though it is legal. This situation falls into a grey zone even when you apply for a mortgage loan in the country you live in but work abroad.

Comparison: Sweden vs Romania, how many people own a house and how many took a mortgage loan to purchase it

According to the statistics presented by the credit experts from FoxyCredit 94,7% of the Romanian population owns a house, only 1,1% of the population that owns a house bought the property with the help of a mortgage loan.

The same credit experts from FoxyCredit discovered that in Sweden, the population owns a house in percent of 63,6%, out of which 51,4% had to apply for a mortgage loan in order to buy a house.

Creditworthiness evaluation

Before granting you a mortgage loan, the lenders must evaluate your capacity of paying the lent money back. This evaluation is made based on your financial situation and the value of the house you wish to buy.

You will have to provide income documentation to be evaluated by the lender in order to decide if you have the financial capacity to pay back the loan. You can be granted a loan only if it’s proven that you can pay it back.

Before signing, evaluate and compare loans

It is always to your benefit to evaluate and compare loans before signing an agreement. When asking for a loan, the lender entity must give you the European Standardised Information Sheet.

When comparing, you should look out for:

  • the total amount of the mortgage loan;
  • how many years is the loan extending;
  • the interest rate applied;
  • total amount to be returned to the lender;
  • APRC (Annual Percentage Rate of Charge);
  • the notarial costs;
  • the amount you have to pay, how often it must be paid, and for how long.

Life insurance, mortgage credit insurance

It is essential to get mortgage insurance, this kind of insurance will help you pay the loan in situations when you might not be able to. This applies in case of sickness, job loss, and even death.

The lenders will provide you the possibility to get insurance with them, but you are always free to check for other options as long as the insurance you choose covers all the lender demands concerning your mortgage loan.

However, you are obliged to open a payment account with the company you lend the money from, in order to pay the loan back.

Mortgage interest rates in European Countries as of 2020

  • Romania – 5,41%
  • Hungary – 4,39%
  • Poland – 4,30%
  • Ireland – 2,87%
  • Czechia – 2,38%
  • Netherlands – 2,09%
  • Spain – 1,76%
  • Sweden – 1,46%
  • Belgium – 1,56%
  • Italy – 1,44%
  • France – 1,12%
  • Germany – 1.28%
  • Denmark – 0,56%
  • Portugal – 1,09%
  • Finland – 0,73%

Because of the economic effects of the Covid-19, 2020 has registered a record drop. Some of the countries dropped under 1% loan rates.

The mortgage rates in Nordic countries tend to be lower because of the stability of the people who apply for a loan.

Inflation, economic growth, monetary policies, and the overall condition of the housing market play a very powerful role in deciding the mortgage loan rates.