What is a mortgage and how does it work in 2020

General points and trends for 2020

A mortgage to improve housing conditions involves citizens purchasing an apartment or other real estate with the help of loan funds from a banking organization issued for a certain period. For the entire lending period, the purchased or other object of suitable value is pledged to the bank - these are the main conditions for obtaining a mortgage to ensure the fulfillment of obligations by the borrower.

In 2020, most credit institutions revised their credit policies and lowered the rate on housing loans to make the purchase of housing affordable for citizens. Basic loan rates have been reduced for both the purchase of housing under construction and finished housing.

A number of banks do not make any difference between the properties being purchased; the conditions for providing a mortgage loan are the same for both newly built and ready-made apartments in multi-apartment buildings. However, other credit organizations, on the contrary, reduce interest rates specifically for the purchase of housing under construction or newly built housing from accredited seller companies.

This is due to the fact that the speed of purchasing an apartment with a mortgage from a developer is much higher than on the secondary market, because the borrower already has a specific loan object and does not need to engage in a lengthy search for an object, as on the secondary market.

In 2020, the state support program for mortgage transactions, carried out jointly with leading credit institutions and providing favorable mortgage conditions, ended, but already in 2020 a family mortgage was launched at 6%.

However, leading banks, already without government support, can guarantee mortgage lending conditions and an interest rate comparable to that which existed with government support and even lower, since the flow of mortgage clients has increased and the number of transactions guarantees a stable income for credit institutions.

The development of innovation is also reflected in concluding mortgage transactions, for example, Sberbank offers a 0.5% discount when registering a transaction electronically. A mortgage loan on more favorable terms can be obtained for both primary and secondary housing.

This procedure will take 2-3 days and will help save time on registering the transaction in Rossreestr, and will also be beneficial to non-resident borrowers, as it will make the process of taking out a mortgage remote.

To apply for a mortgage via electronic registration after approval, you must contact the bank’s partner (developer or real estate agency) or Sberbank itself.

Financial experts agree that the cancellation of the state mortgage support program has already been digested by the market. Banks have adapted to new conditions and are offering preferential terms for purchasing an apartment in a new building in 2020.

The lowest rate will be a preferential mortgage at 6%, which is given for new buildings.

How does a mortgage work?

Mortgages in Russia appeared relatively recently, so this type of business has not yet revealed all its possibilities. It works in several stages

:

1. The client turns to the bank for help to pay for an expensive purchase (housing);
2. The bank enters into a mortgage agreement with the client, which specifies what will become collateral - the purchased property or the borrower’s old apartment;
3. The client makes a down payment, and the bank pays the balance required for the purchase.

Further interactions either result in the client successfully paying off the mortgage. In this case, the borrower pays not only the amount deposited by the bank, but also interest on its use. After the last payment, the relationship between the bank and the payer ends.

If the situation is unsuccessful, the bank takes the borrower's property, which was specified in the agreement as collateral. Through the sale of this property, the bank must cover the amount spent on its purchase and interest on the use of these funds. The mortgage waiver procedure is carried out in several stages. Very often, the bank tries to help a client who, due to financial difficulties, cannot make regular payments. It is permissible to refinance the mortgage or freeze payments.

If the incentive measures do not bear fruit or the client voluntarily decides to terminate the mortgage agreement, the bank puts the collateral up for auction. It is popularly believed that the bank takes away the collateral, but credit organizations do not aim to obtain ownership rights. The main task is to sell the collateral and repay the debt using the proceeds.

In this case, the borrower can receive the difference between the price of the collateral and the mortgage debt.

Requirements for borrowers in 2020

Not every person who wants to take out a loan for housing under construction or finished housing can take advantage of bank loan offers. There are a number of conditions that some credit organizations put forward:

1. Citizenship. As before, to issue a mortgage loan you need to have Russian citizenship in almost the vast majority of banks. There have been certain reliefs for citizens of Ukraine and Kazakhstan, as well as other republics of the former USSR. Mortgages for foreigners in 2020 on general terms are possible at VTB 24, Bank of Moscow, Transcapitalbank. Raiffeisenbank provides loans at an interest rate of 1.5 - 2% higher than the standard offer.
2. Registration. Must be on the territory of the Russian Federation. A number of banks accept applications with temporary registration or without it at all, like VTB 24 for example.
3. Borrower's age. A citizen who decides to take out a loan must be at least 21 years old and not older than 70 years old - the period of greatest efficiency and solvency. Some banks allow the start of lending from the age of majority - 18 years old - until the citizen reaches his 75th birthday.

The age of the borrower for social programs differs from generally accepted programs and is associated either with the activities carried out by the borrower (military mortgage) or with their compliance with essential criteria (mortgages for young families).

1. Work experience. The standard work experience that credit institutions require from borrowers is at least six months at the last (current) place of work and at least 1 year in total. The rationale for this requirement is the presence of permanent employment and stable income for the borrower, as a guarantee of repayment of loan funds.

Work experience and employment can be confirmed by a certificate from the place of work, provision of an employment contract and a certified extract from the work record book. As mentioned above, a number of banks allow the provision of mortgages without confirmation of employment and income, however, in this case, the loan rate and the size of the down payment automatically increase, and the loan term decreases, but it is better to indicate the length of service in the application form in accordance with the requirements of the credit institution.

The good news is that there are banks that offer better conditions for this criterion. Thus, the Eurasian Bank offers a loan with an experience of only 1 month, DeltaCredit 2 months, and a fairly decent number also offers loans with an experience requirement of only 3-4 months. Use our Mortgage Selection service to choose the bank option you need.

1. Salary level for mortgage. The total income received by a citizen at his main and additional place of work, from securities, deposits and monthly dividends, pensions and business profits, must ensure not only the mortgage payment, but also the life and existence of the borrower and his family members.

The generally accepted rule that exists when calculating a mortgage is that, after deducting expenses, the mortgage payment should be no more than 60% of the funds a citizen receives monthly. This requirement of the bank should not only ensure a comfortable life for the borrower in the presence of loan obligations, but also guarantee the repayment of the debt to the bank itself.

We discussed in more detail what salary is needed for a mortgage in our previous article. Read it and you will learn how to get a mortgage even with a low official salary, gray income or, without it at all.

1. Attracting co-borrowers and guarantors. If a citizen’s own income is not enough to approve a loan, or if a property is purchased as joint property, for example, spouses, co-borrowers and mortgage guarantors may be involved.

In this case, the bank will consider not only the income, experience, and credit history of the borrower himself, but also the persons involved. In some ways, this is a plus, since it increases the chance of loan approval for individuals

Is a mortgage profitable?

A home mortgage loan has its advantages and disadvantages.

The advantages include:

• solving the housing problem;
• Mortgage payments are more affordable than conventional loans;
• the opportunity to participate in government programs for mortgage co-financing;
• full legal support of the transaction by a bank employee;
• partial refund of interest in the form of a tax deduction.
• the opportunity to take advantage of credit holidays is a deferment or reduction of payments for a certain period if the financial situation worsens.

The disadvantages of a mortgage are:

• the presence of real estate as collateral from the bank, and, as a result, restriction of rights to dispose of property (resale, donation only with the permission of the bank);
• strict requirements for a potential borrower;
• the need to make a significant down payment, as well as payment for the services of an appraiser at the stage of loan approval (for the secondary market);
• despite the feasible monthly payment, in fact the housing will be much more expensive (overpayment of interest);
• annual home insurance (a mandatory condition of the loan agreement), and in some cases the imposition of personal insurance;
• in case of financial difficulties, there is a high risk of becoming homeless;
• A mortgage loan is a long-term commitment (10 years or more).

In any case, everyone decides for themselves whether a mortgage is beneficial for them or not. However, it is unrealistic for the average Russian to save up for housing on his own, so a mortgage loan is a good way to solve the housing problem.

It might be interesting!

What is better and more profitable: a mortgage or a loan in 2020

Sum

When calculating the amount that is acceptable for mortgage approval, the bank will examine the documents provided by the borrower and a number of other circumstances:

• Information confirming income: data on wages in the form established by the bank or 2 personal income tax, civil and other contracts, confirming the stable nature of earnings. Income can be confirmed both officially and part-time, unofficially.

It is necessary to confirm your existing income, since based on the information received, the credit institution decides how much to issue a loan. The terms of the mortgage are such that the loan amount should not exceed 40-60% of the borrower’s total family income.

• Age of the potential borrower (the terms of a preferential mortgage may reduce the maximum permissible age, for example, the terms of a mortgage for young families set a limit - from 21 to 35 years - the age of the participant in the transaction);
• The level of expenses for each family member, including for loan obligations of other banks;
• Whether or not the citizen has provided the entire package of documents - in the absence of official information about income, a loan can be granted based on two documents, in which the amounts received on the loan are different than with regular lending;
• Availability of co-borrowers and/or guarantors;
• The cost of the purchased apartment;
• Availability of life insurance or the loaned object.

The crisis sharply increased the cost of credit and payments made, prompting many banks to refuse to provide loans in foreign currency, as the number of non-repayments increased. Most banks issue mortgages exclusively in the national currency - rubles.

It is no coincidence that the minimum and maximum amounts are set by banks; they guarantee a stable income from interest and automatically “weed out” unreliable categories of borrowers.

Most banks issue loans for the purchase of housing in an amount of at least 100 thousand rubles and no more than 15-60 million, depending on the bank, the location of the property or its type - secondary or primary.

You can find out what the mortgage amount depends on from our previous article.

Types of mortgage programs

Financial institutions offer different types of mortgage programs.

They are divided into 2 large groups:

• basic (issued to everyone who meets the requirements of creditors);
• special, for which only certain categories of citizens can apply.

Standard

Most banks offer this program to the population. A loan secured by property is issued at a reduced rate.

Depending on the specifics of the agreement, standard mortgage programs are distinguished according to the following criteria:

• intended purpose;
• type of property being purchased (apartment or house, from the primary or secondary market, ready-made or in the process of construction, etc.);
• loan currency;
• type of payments (equal or differentiated);
• collateral (real estate existing or purchased with loan funds).

When choosing a standard mortgage program, you first need to pay attention to the type of property, its location and other characteristics. It is worth considering that the bank will not accept an apartment that is illiquid on the market as collateral, so it will not be possible to purchase it with loan funds. Many financial organizations cooperate with developers and sellers of the primary market, offering preferential terms for their real estate, which is also worth paying attention to.

With state support

This type of mortgage is issued to categories of citizens in need of social protection.

These include:

• families with 2 or more children;
• disabled people and their relatives caring for them;
• public sector workers, including social security;
• cultural and sports figures;
• war veterans;
• employees of the military-industrial complex of the Russian Federation;
• people from orphanages;
• other categories of citizens who are unable to purchase housing without state assistance.

To obtain this type of mortgage, the client must submit an application for improvement of living conditions and stand in line.

State assistance in repaying the loan may include the following:

• issuing a subsidy for a down payment or debt repayment;
• reducing the interest rate on the loan;
• sale of real estate from state developers at a reduced price.

The recipient of state support most often cannot independently choose the nature of the assistance. The decision to provide it is made by local authorities.

For a young family

This type of mortgage is issued to couples with or without children, in which one spouse is under 35 years of age. It is necessary to obtain official recognition that the family needs improved living conditions. Government assistance consists of providing a subsidy for the down payment on a real estate loan. Its size can be up to 30% of the cost of the purchased home.

Minimum and maximum period

When calculating the conditions under which a mortgage is given and the length of the period for which the bank can issue a loan, organizations usually take into account their costs of servicing loan agreements. Minimum terms may be unfavorable due to the lack of interest income.

The solvency and age of the borrower are also taken into account. The first point determines how acceptable it is for citizens and families to make a monthly payment; the second determines whether a mortgage will be granted during the working period of a citizen’s life, which will provide him with a stable income, and the bank with a respectable borrower.

The average loan term currently ranges from 1 to 30 years, depending on the credit institution.

For more details, see our post “Until how many years can you get a mortgage for an apartment?”

The essence of mortgage loans

A mortgage loan is the provision of assistance to citizens when purchasing a new home or other expensive goods. Today, a mortgage is the most profitable offer in the field of purchasing real estate if the client does not have enough funds to purchase. Depending on the type of housing, you must have 50-15% of the value of the property in order to obtain ownership of a new apartment or house.

For many citizens, a mortgage loan is the only opportunity to get their own home, because to receive such help you need very little:

1. Have a regular income;
2. Have an amount for a down payment;
3. Meet the bank's requirements.

This lending method is convenient both for the borrower, as it offers favorable conditions, and for the lender, as it reduces the risk of non-payment of the loan to a minimum.

An initial fee

Under what conditions can I get mortgage approval? Confirming your solvency and willingness to bear loan obligations. The borrower can do this by making an initial accumulated contribution.

Such a contribution will be a plus for both parties. The bank receives a minimum guarantee of repayment of the loaned funds, and the borrower reduces the term, amount and interest rate of the loan.

The size of the down payment also differs depending on the type of loan:

• When purchasing an apartment in a new building or from accredited developers, as well as purchasing housing on the secondary real estate market, the average down payment, depending on the bank, is 10-20% of the cost of housing;
• When buying a residential building, the borrower must be prepared to contribute from 15 to 25% of its cost;
• When applying for a simplified version of a mortgage using two documents (without proof of income and employment), citizens must ensure the availability of their own funds in the amount of 40-50% of the value of the property.

In rare cases, banks allow no down payment at all. However, this may affect the interest rate (increasing) and the maximum loan term - it may be reduced. We recommend that you learn in more detail what a down payment on a mortgage is and how to get around it in our previous post.

Mortgage transaction fees and expenses

Before submitting a loan application, the borrower should study all current loan offers, since a number of banks have mortgage conditions that require additional various commissions and payments when obtaining a mortgage:

• For transferring funds from the borrower's account to the bank account;
• For opening a letter of credit account;
• Taking out a mortgage insurance policy.

The borrower's refusal of insurance may increase the loan rate by 0.5-1% per year, which will be a significant amount. Some banks offer to issue an insurance policy directly in their branch, however, it is worth studying the offers of other insurance companies, as their rates may be lower. You can find out where mortgage insurance is cheaper directly on our website.

Interest rates for finished and under construction housing

Next, we have prepared for you two tables for finished and under construction housing. Let's compare conditions in banks in 2020.

Ready housing

New buildings

Documents for mortgage

The standard package of documents for a mortgage loan is not that large; the borrower usually provides:

• Passport;
• Completed mortgage application form;
• A certificate from your place of employment confirming the level of income received;
• A copy of the employment record or certificate of length of service;

All other documents depend on credit institutions and the conditions of special programs. We discussed them in more detail in the post “What documents are needed for a mortgage.”

Documents for individuals

To apply for a mortgage, you should prepare a list of required documents. It should be noted right away that the full list is clarified directly at the office of the financial company from which you decided to receive funds.

Standard package of documents:

• borrower's passport
• the borrower's choice of second document: SNILS, INN or driver's license
• for men under 27 years of age – presence of a military ID
• certificate of marriage and birth of children (if available)
• photocopy of the work book certified by the employer
• income certificate, both in the form of a bank and 2NDFL
• a certificate confirming another source of income: lease agreement or deposit statement
• borrower's questionnaire filled out according to the lender's form
• application for receiving the required amount, according to the bank form

It is important to consider that in addition the bank may request other documents, such as:

• Diploma of Higher Education
• certificate from a medical institution regarding health status

As for the guarantor or co-borrower, he will need to prepare similar documents. Otherwise, the bank may legally refuse to issue a mortgage.

How to get a mortgage

The standard procedure for mortgage transactions is as follows:

• The borrower chooses a loan offer and bank that is convenient for him;
• Housing is selected: secondary or from an accredited list of developers;
• An application is submitted to the bank to consider the possibility of a loan;
• Upon approval of the transaction, a list of documents on the loaned object is provided;
• Transactions are registered in Rosreestr, insurance is taken out and the banks make the final payment of loan funds for the purchase of housing.

You can find out more about how to buy an apartment with a mortgage right now.

Advantages and disadvantages of a mortgage

Mortgage loans are considered the most profitable type of home purchase on credit.

Its advantages:

1. Long time to repay. A targeted housing loan is issued for 7-15 years, while a mortgage in some cases can be obtained for up to 50 years. This is convenient when purchasing expensive real estate.
2. Reduced interest rate. On average, it is 3-5% lower than with targeted housing lending (for preferential programs - 8% or more). Considering the long term and large amount of a real estate loan, you can save a lot of money.
3. Solving housing problems. A mortgage loan eliminates the need to save for a long time for your own apartment, while simultaneously paying rent for temporary housing. This saves a lot of money in the long run.
4. Possibility of use for investment. You can take out a mortgage loan for apartments under construction. Property approved by bank specialists rarely falls in price, which makes it possible to make a profit from selling real estate on the market.

The disadvantages of a mortgage include:

1. Complexity of design. Since the loan is issued for a large amount, credit organizations carefully check borrowers and often require additional documents confirming income and good credit history.
2. Long processing times. The procedure for obtaining a loan for the purchase of housing includes not only collecting papers and signing an agreement, but also assessing the property by bank employees, registering the transaction with the Federal Registration Service and other procedures that can delay the process.
3. Large overpayments. Even with a reduced interest rate, the amount of interest charges often exceeds the cost of the home itself.
4. Restrictions on transactions with collateral. The client has the right to use the apartment for living or rent it out (after receiving permission from the bank), but it cannot be sold or donated before the mortgage expires.
5. Risk of losing your apartment. If the borrower fails to fulfill his obligations to the bank, he may lose the purchased home - the lender will take it. The funds used to pay off the debt are not returned.
6. Limited choice of accommodation. Under mortgage lending programs, you can only buy apartments or houses that the financial institution considers liquid.
7. Mandatory real estate insurance.

Whether to take out a mortgage is a difficult question, especially for “dummies” in the field of lending. Before making a decision, you should pay attention not only to the advantages and disadvantages of this type of loan, but also to your own financial stability and the current needs of the family.

Mortgage repayment

Planned repayment of the mortgage loan occurs monthly in annuity (equal) or differentiated payments (with a gradual decrease in the amount). The overpayment for the second type of payment is significantly less, but not all banks approve of this option.

Early repayment of the mortgage is possible either partially or completely. There should be no fines, restrictions and commissions - this is illegal. Delay in making monthly payments of more than 3-6 months can result in court proceedings, imposition of fines, removal of the property from the borrower’s property and sale of the apartment at auction.

If you need legal support, then sign up for a free consultation with our lawyer in a special form. We will quickly help you resolve all controversial issues with the bank.

State support programs

Since 2020, the state no longer provides a reduction in the loan rate, however, there are other preferential conditions for obtaining a mortgage:

• Using maternity capital accrued by the Pension Fund at the birth of the second child;
• Military mortgage – for persons participating in the funded military system;
• Mortgage for a young family - for couples or single parents, provided they are on the list for improvement of housing conditions;
• Social mortgage - for persons engaged in certain activities (doctors, teachers, etc.) or living in certain conditions (the Far North zone);
• Mortgage restructuring – writing off up to 30% of bank debt for certain categories of citizens.

We reviewed mortgages with state support in 2020 earlier. Be sure to read this article to find out what government benefits you may qualify for.

Calculation and where to get it

You can calculate your mortgage yourself directly on our website. Use our mortgage calculator. It will allow you to find out the monthly payment for annuity and differentiated payment, what income is needed for the required amount, how much you will overpay, how the schedule and overpayment will change in case of early repayment and early repayment of the mortgage with maternal capital.

The calculator is very functional and will allow you to quickly calculate the desired option. From this post you can take the percentages, and then plug them into the calculator and compare which conditions in different banks are more suitable.

Also, the “Online Application for a Mortgage Loan” service operates directly on our website. With its help, you can send a mortgage application to all banks at once and quickly receive a decision with a partner discount at a rate of 1%.

We are waiting for your questions and suggestions in the comments. We would be grateful for rating the post and liking it on social networks.