A mortgage loan allows you to purchase a home. Mortgages are offered by banks, building societies or other lenders and are often secured against your property.
A mortgage loan usually comes with a lower interest rate and a longer redemption period in comparison with consumer credit. However, if you fail to fulfil your repayment obligations and your mortgage has been secured against your property, lenders can seize and resell your home to pay off the loan.
Banks are free to accept or not your mortgage application. Before offering you a mortgage, the lender needs to assess your creditworthiness, that is whether you can actually afford it.
You can in principle also obtain a mortgage loan from lenders based in other EU countries; however, your country of residence, where you work or the location of the property may influence how the lender assesses your application.
Understanding how your creditworthiness is assessed is therefore crucial.
Before agreeing to offer you a loan, lenders must assess your creditworthiness. They will make their assessment on the basis of different criteria, including:
- your financial situation (assets, debts, etc.)
- the value of the property the loan is secured against
You will therefore be asked to disclose your income so that the lender can check whether you are capable to repay the loan.
The lender can only offer you a mortgage credit if the assessment shows you are likely to be able to repay the loan.
Lenders frequently refuse to grant mortgages for properties located in other countries, or to people whose source of income or place of residence is not in the country where the bank is located. However, they are not allowed to discriminate between EU citizens solely on the basis of nationality.
If you think a bank has discriminated against you on the basis of your nationality, you may wish to:
- contact the bank (its 'complaints office') to obtain an official statement in writing giving the reasons for their refusal
- if the refusal is solely based on your nationality, ask for advice and help from FIN-NET (the Financial Dispute Resolution Network), which mediates in cross-border conflicts between consumers and financial service providers, such as banks
Key information to assess and compare offers
It is advisable to compare offers from different lenders before taking a decision on a mortgage loan. When making a binding offer, the lender has also to give you the European Standardised Information Sheet (ESIS). This standard document is designed to give you the best possible overview of the terms and conditions of the mortgage credit on offer.
The ESIS provides the following information:
- the amount of the loan
- the duration of the loan
- the type of interest rate
- the total amount to be reimbursed
- the annual percentage rate of charge (APRC): a single figure representing the total cost of the loan, expressed as an annual percentage. The APRC is provided to help you compare different offers
- any costs to be paid, regularly or on a one-off basis
- the number, frequency and size of your payments
- information on the conditions for early repayment and charges you would be liable for if you decide to repay your loan early
- if you are taking out a loan in a foreign currency: examples explaining the potential effects of exchange rate changes on your mortgage credit
The ESIS allows you also to compare offers from different credit providers and select the one that suits you best. If you haven't received the ESIS form from your lender, you can request it.
At least 7 days to assess offers or withdraw
Under EU rules, the lender or credit intermediary has to give you at least 7 days to assess the offer; some EU countries' national law will give you more time.
Depending on the country where you are applying for your loan, this could either be:
- a reflection period, during which you can consider whether the offer suits you
- a period during which you can withdraw from the credit agreement you have already signed
- a combination of the two.
Paying off your mortgage loan early
You can usually repay part or all of your debt early. This allows you to stop paying interest on outstanding debt, or move to a more favourable mortgage offer, including from a different lender.
National rules determine in this case whether the lender can ask you to pay compensation if you terminate your mortgage loan earlier than foreseen.
Where applicable, such compensation should never exceed the financial loss of the lender.
Mortgage credit insurance, other services
Mortgage credit insurance comes into play if you are faced with circumstances that prevent you from repaying your debt - for instance, in the case of death, illness or job loss.
Lenders can require that you buy a mortgage credit policy.
They may propose a policy to you in a package with your mortgage credit agreement; but this cannot be made a condition for you to obtain the mortgage credit.
You are always free to look for better conditions from other insurers, as long as the level of guarantee offered by different policies is equivalent to what is required by the lender.
Lenders can, however, oblige you to open a payment or savings account with them, from which you will repay the loan.