Securing a mortgage typically requires a financial guarantee from the borrower. This adds costs to your total borrowed amount. While often overlooked, it's a key bank requirement that impacts your homebuying project. Here's what a financial guarantee does, how much it costs, and why it matters.
A mortgage guarantee protects the bank from borrower default. After reviewing your application, requiring a down payment, and mandating loan insurance, banks often demand this extra layer. If you can't repay, the guarantor steps in. Note: This differs from loan insurance, which covers death, disability, or permanent incapacity.
There are three primary ways to guarantee a mortgage, ensuring repayment if the borrower defaults.
First, the deposit (or surety)—the most common today. You pay a surety company, often linked to banks or mutual insurers. They guarantee repayment for the loan term. It's quick, simple, and notary-free.
Second, a mortgage on the property itself. If you default, the bank can sell it to recover funds. This requires a notary, adding fees.
Third, the lender's privilege: Not a full guarantee, but it gives the bank priority over other creditors if the property is seized and sold.
Costs vary by guarantee type and are borne by the borrower.
For a mortgage guarantee: 0.7% land registration tax on the total debt (capital + interest), plus property security contribution, notary fees, disbursements, and VAT. It's the priciest option.
The lender's privilege: Just registration fees.
For surety: Commission to the surety company plus mutual guarantee fund payment. Good news: The fund may refund part of your contribution after full repayment.
Consult a notary for precise quotes. Beyond guarantees, expect interest (financing cost), admin fees, and borrower insurance.
