If you are seeking a mortgage loan

What you should look for when choosing a mortgage loan

  1. Clarity in the contract
  2. The interest rate
  3. Accessory costs
  4. Timescale for processing applications
  5. Default rate for late payment. Clarity in the contract

You also need to know...

  1. The procedure for granting funds
  2. Tax deductibility
  3. The sum of the mortgage
  4. The procedure for cancellation
  5. Limits on the option to sell
  6. Additional guarantees requested by the bank

Focus on...

  1. Re-negotiation
  2. Oppressive clauses
  3. Consultants and intermediaries


Clarity in the contract

Loan agreements are often difficult to understand. This is partly due to the need to use technical terms which cannot be substituted; nevertheless the problem could be overcome with an undertaking to simplify the text, resulting in a clearer relationship between the bank and the user. It is advisable to obtain the text of the contract in advance of the signing, especially the "general conditions" proposed by the bank.

if there are difficulties in comprehension and the response from the bank is not satisfactory, the question can be addressed either to a consumers' association or to the notary, both of whom can explain the terminology even before the loan is agreed. Lack of clarity in the contract can also be an indication of a low-quality product, in which case it is advisable to approach a different credit institution.

The interest rate

This is generally the main or exclusive element in the consideration of a loan. However it is important to examine other factors, listed below, before making a choice, as it is essential to calculate the total effect of repayments on the family budget.
It is therefore important to look at the difference between the initial rate, lower for the first six-month period, and the operational rate, as well as the difference between fixed rates and index-linked rates, as for example a low initial rate may be tempting but the subsequent operational rate may be a nasty surprise, while a fixed rate which looks good today may become expensive in the near future. Moreover, in the calculation of the monthly repayments, additional costs are added to the interest, and it is useful to know about these in advance.

Accessory costs

In this section there are sometimes disagreeable surprises in terms of the economic burden; it is therefore appropriate to examine carefully the interest on the loan, appraisal and preliminary costs, and the cost of the insurance - more or less compulsory - with which the bank covers itself against the risk of fire or explosion in the property or the death of the borrower. It is also a good idea to be aware in advance of the notarial fees which, for various reasons, may vary according to the sum borrowed.


Timescale for processing applications

When a buyer makes a commitment to the purchase of a house by a certain date and must pay a penalty for late payment, prolonged processing times before the loan is approved can be expensive.  As a rule 60 days are more than sufficient to obtain a mortgage loan.


Default rate for late payment. Clarity in the contract

Although a person applying for a loan does not envisage the situation of being unable to make repayments on time, this eventuality must be carefully considered, to avoid unfavourable or unexpected situations leading to dangerous chain effects.


You also need to know...

 The procedure for granting funds

Since the mortgage agreement exists only when the notary has registered it at the appropriate office, and this registration may happen after the signing of the loan agreement, the bank often retains the sum of the loan until the paperwork is completed, which means a delay of two to three weeks before the money loaned is made available.  In the case of a property purchase, the seller must therefore wait for this period of time before receiving payment.

It is essential to clarify with the bank and the notary the timings of availability of the money. To avoid this waiting period, some banks make the sum available immediately in the form of pre-financing; in this case it is appropriate to examine the interest charged by the bank. The alternative is to agree in advance with the seller, who must have suitable guarantees in place in the case of selling without receiving the agreed sum. It is the notary's task to propose and explain the various options to both parties.


Tax deductibility

The law allows a portion of passive interest and accessory fees to be tax-deductible when they are paid on mortgage loans specifically for the acquisition of property and/or rehabilitation of buildings. This possibility of tax deduction therefore deserves careful attention.


The sum of the mortgage

The mortgage is the guarantee which allows the bank to forcibly recuperate its credit when a debtor does not pay. To the main debt (the capital), additional costs are added: the interest established for the loan, late payment fees and costs for the eventual sale of the house by auction. This is why the mortgage is drawn up for a substantially higher amount than the loan. This means that the value of the house itself is reserved for the bank and a second loan - which banks do not always grant - may be requested to cover the residual costs.


The procedure for cancellation of the mortgage

The loan is paid off when the final payment is made. The mortgage which guarantees the loan, however, remains standing until twenty years have passed since it was set up, technically from the date it was granted. For loans lasting less than twenty years, then, there is an interim period when the mortgage exists even though it is no longer useful.
In this case it is not advisable to ask the bank to cancel the mortgage unless the house needs to be sold. It should be remembered that cancellation of a mortgage always takes several months and the cost is not negligible (around €500 for a mortgage of €160,000).


Limits on the option to sell

Some loan agreements stipulate that the borrower cannot sell the house before the loan has been paid in full, in which case if the house is sold the loan must be paid off early, together with any penalties which may arise. Clauses of this type should not be taken lightly as they can cause a serious encumbrance if you wish to move house. Not all banks stipulate this: you could ask for the clause to be removed, or change to another bank. In any case the prohibition on selling the house should be limited to a reasonable time period (for example five years).


Additional guarantees requested by the bank

When considering a loan application, the bank must take into account not only the value of the house but also the borrower's ability to meet the repayments. For this reason the bank sometimes asks for the loan to be guaranteed by a third party (for example a parent for a child). This procedure is acceptable as long as the sum and the duration of the guarantee are stated. However, a request from the bank (or more often a holding company) for power of attorney to sell the house if the repayments are not met should be refused.


Focus on...



Re-negotiation can be considered a recourse for general use, but it is dependent on the will of both parties (the bank and the borrower).
Either the interest rate or the duration of the agreement may be re-negotiated; or the existing contract may be closed and a new one opened, with all its consequent costs; these must be carefully evaluated and compared to the advantage to be obtained by the lower interest rate.


Oppressive clauses

Disadvantages sometimes suffered by borrowers upon entering into a loan agreement for a property, such as excessively heavy penalties for early repayment or limits on the option to sell the mortgaged property and transfer the loan to third parties, can nowadays be challenged, thanks to new regulations on oppressive clauses.
It is precisely problems caused by this type of oppressive-abusive clause which prompted the Italian Banking Association and consumers' associations to publish a handbook which redefines the fair balance of rights and responsibilities between the client and the bank.
Above all, the client should insist that contractual clauses proposed by the bank always be understandable and presented far enough in advance.
If any of the contractual terms represents an unfair balance of rights and duties against the client, it can automatically be considered ineffective.  Consumers' associations have the power to cite in court credit institutions using general contractual conditions which are illegal, and ask the judge to prohibit their use.


Consultants and intermediaries

These days it is within the reach of anyone to apply for a loan in order to buy a house. It is usually sufficient to apply to a bank and produce the few documents requested.  For this reason, the occasional practice of charging large fees for "financial mediators" cannot be justified.
A person who applies for a loan and needs clarification can always consult a consumers' association or a notary, an impartial professional chosen by the borrower and whose intervention is necessary in any case for the arrangement of the mortgage; and whose fees can be put to maximum use by procuring all the necessary information.