Previously, before the 2008 crisis, you could take out a loan up to 120% of the value of the property that you wanted to buy. Nowadays, the bank usually asks that you use part of your savings. This is to your advantage, because borrowing more than your home is worth can put you in trouble! What if real estate falls in value, or if you lose your work? In the first case you have to pay more than your home is worth, in the second case you can no longer pay!
The bank therefore tries to limit its risk. The house that you purchase is therefore used as the value of your collateral. This means that if you do not pay off your loan, your home will be assessed and sold to pay off the loan. But no worries, this is only in theory, not normally practice!
What is a mortgage loan?
A mortgage loan is actually another name for a mortgage. With a mortgage loan you can buy a house, apartment or building land with the home / building land itself as collateral. Giving something as collateral means that if you do not meet your payment obligations, the lender has the right to sell what you have given as collateral and to pay off the remaining debt with the proceeds. But of course it doesn’t have to come to that.
There is always a term attached to a mortgage loan. That used to be often 20 years, nowadays most people take out a mortgage with a term of 30 years. Depending on your income and other factors, the lender will make a proposal with regard to the precise term of the mortgage loan.
Each mortgage loan is calculated on the basis of a number of factors.
These include factors such as your income, or the joint income of you and your partner, but also your personal living situation and age.
There must in any case be a balance between the value of your collateral and the amount of the loan that must be provided. To achieve this balance, an execution value will be determined. This is the amount that the lender expects the collateral to yield in the event of a forced sale. Most mortgage lenders hold a percentage of 125% when determining the execution value of your maximum loan. However, it is always wise to seek personal advice from a mortgage advisor.