How does the mortgage schedule work?
A mortgage is a loan granted by a bank, insurance company, pension fund or individual to the purchaser of real estate. In return, the buyer pledges the same property to the creditor. The document duly drawn up is called the cédule hypothécaire. Thus, if the debtor does not honour his obligations (if he does not pay the interest and does not reimburse his loan), the creditor has the right to take possession of the property and put it up for sale in order to recover his money.The mortgage schedule is established by a notary based on information provided by the lender/creditor (bank, insurance, etc.). The schedule can be in registered or bearer form. It gives the holder or holder the power to seize the property if the terms of the loan are not honoured.
The creditor indicates on the document the pledge value he grants to the pledged property. For example, if he agrees to finance a loan of 500,000 francs on an apartment, he indicates this amount to the notary (usually chosen by the purchaser of the property, i.e. the debtor) who draws up the document. The notary is remunerated by the purchaser, according to regulated rates. Be careful, a cédule can be reopened if the bank agrees to increase its loan, especially if the value of the property has increased over the years.
Example:
An apartment in PPE is worth CHF 750'000;
- The bank agrees to lend CHF 500,000 to a person who wants to buy this apartment;
- The bank contacts a notary to draw up a schedule for an amount of CHF 500,000;
- The notary executes and has the document signed by the bank and the debtor;
- The debitor pays the notary's fees (a few thousand francs);
- The bank keeps the original of the schedule, the debtor receives a copy.
- Ten years later, the debtor wants to renovate and asks the bank for an additional CHF 50'000;
- The bank accepts because the value of the house has increased to CHF 850,000 in the meantime;
- The parties return to the notary to make the change for a fee.
Calculate online the notary's fees for drawing up a mortgage schedule:
In general, the schedule remains at the bank. It can be reopened and increased (see example above). It can also be transferred from one bank to another if the debtor changes banks when a loan matures. The debtor can only change banks if the entire loan secured by the schedule is honoured. This means that if the debtor wishes to change banks, he must transfer his entire mortgage to the new bank. This operation is only possible on the due dates to avoid excessive fees. The schedule is transferred at the same time as the loan.
The optimal mortgage term is the one that allows the borrower to pay as little interest as possible. The longer the term of the loan, the higher the interest. But the shorter the term of the loan, the more the borrower has to renegotiate his loan with the bank with the risk that the bank will demand higher interest or a faster repayment when the next contract is signed. The optimal term is therefore a subtle balance between the cost of the mortgage and its stability. As a general rule, this duration varies between five and ten years.
Example:
The buyer of a property is considering borrowing CHF 500,000. He has the choice between :
- A five-year loan at a rate of 0.88%. He will pay CHF 4'400 per year, but he will only be sure of his interest charge for five years.
- A ten-year loan at a rate of 1.01%. He will pay CHF 5'050 per year, but he will be assured that this amount will not vary for ten years.
Is a mortgage schedule a good option for your home loan? The experts at Cardis Sotheby's International Realty answer you!