Terms used in mortgage
Mortgage is the so-called lien of real estate in order to secure liabilities before creditor. Buying apartment on mortgage means obtaining credit for real estate purchase. Repayment of a credit is liabilities before creditor. Guarantee of fulfillment of these liabilities is lien of real estate. You can buy and mortgage not just apartment but also any other real estate objects. Apartment purchased on mortgage is considered to be a mortgage borrower's property starting from the moment of purchase of an apartment on mortgage. 'Mortgage' term in Russia is generally used when speaking about housing issues.
Buying apartment on mortgage is the most wide-spread option of mortgage use. As a rule, a newly purchased apartment is mortgaged, but you also can mortgage the apartment you already own.
Mortgage credits are given by creditor banks. Each bank has its own terms of credit. This is why you should carefully choose your creditor bank.
Social mortgage is improvement of housing conditions of socially unprotected people by means of mortgage credit lending and state financial support. Housing conditions can be improved only within the frames of given social norms (today the norm is 18 m? per individual). Social mortgage can be useful for people waiting for apartment 'in queues', young people, people working in public sector, military men, young families, in general all those people who are recognized as those who need to improve their housing conditions.
Terms of social mortgage can be different. They can be as follows: subsidy for part of the apartment cost which is purchased on mortgage, allowance of interest rate on mortgage credit, sale of apartments on mortgage at knockdown cost.
Preliminary calculations on necessary initial payment, credit volume and credit length as well as amount of monthly payments on mortgage credit and minimal income of mortgage borrower (his family) are made by authorities responsible for housing policy of a city (region). Apart from the requirements to social mortgage borrower presented by the authorities there are also the requirements of creditor bank which cooperates with the authorities on social mortgage programs and provides mortgage credits. Requirement of obligatory mortgage insurance at one's own expense is also valid for participants of social mortgage programs.
Mortgage guarantor is a person who guarantees fulfillment of mortgage borrower's liabilities before creditor bank in case mortgage borrower will not be able to fulfill these liabilities. Physical bodies as well as legal bodies can be mortgage guarantors. In case mortgage borrower is not able to fulfill his liabilities his guarantor has to pay total amount of credit and interest on credit to the bank. He also should compensate bank's expenses with regard to collection of debts (legal costs). After that creditor rights move to guarantor from bank.
Mortgage co-borrower is a person whose income is considered by bank when calculating the amount of money that can be given by creditor bank for apartment purchase on mortgage. Depending on requirements of creditor bank, spouse, relative, or any other individual can be mortgage co-borrower. Each bank has its own co-borrowers' income accounting treatment used when calculating the maximum amount of mortgage credit. It depends on the number of co-borrowers, their relations with mortgage borrower and correlation of borrower's income and income of his co-borrowers. Co-borrower has joint liability with borrower on mortgage credit. According to the Russian Law, a spouse can automatically become co-borrower on mortgage credit. In case a borrower does not have enough amount of credit for apartment purchase on mortgage he can draw some co-borrowers.
Mortgage agreement - is an agreement on pledge of real property. According to mortgage agreement the parties are a pledge holder (creditor bank) and a pledger (borrower and co-borrowers of mortgage loan). All Parties should be legally capable. In case the pledger is a legal body it should not have any restrictions on transfer of property as a pledge which should be stated in constituent documents.
Annuity payments. Annuity is an equal monthly payment during all period of credit activities. Annuity payments are convenient for budget planning of borrower as they always amount to an equal sum. And at the first stage of mortgage loan repayment a sum of annuity payments is lower than a sum of graded payments.
Graded payments imply monthly decrease of a sum given for repayment of mortgage loan. Graded payments are high during first years of mortgage loan repayments. On the other hand starting approximately from the middle of credit period when mortgage repayments get much lower there appear free cash resources and ability to take a new credit.
Mortgage insurance. Insurance is an obligatory condition of mortgage issuance. According to the law a borrower should insure only a pledged item from damage or total destruction. Though as a rule creditor banks demand that the borrower should additionally insure his life and capacity to work along with risk of loss of lodging ownership right (title). Mortgage insurance term is equal to the period of mortgage credit.
Insurance payments are made once a year. Each year amount of insurance payments decreases along with debt under credit. Insurance of life and capacity to work is paid starting from obtaining a credit.
Laws on mortgage
Federal law ¹ 102-FZ dated July 16, 1998 "On Mortgage (pledge) of Real Estate" (as in force on 18.12.2006).
Federal law N 188-FZ dated December 29, 2004 "Housing Code of the Russian Federation" (as in force on 29.12.2006).
Federal law N 122-FZ dated July 21, 1997 "On State Registration of the Rights to Real Property and Transactions Therewith" (as in force on 18.12.2006).
Federal law N 218-FZ dated December 30, 2004 "On Credit Stories" (as in force on 21.07.2005).
Federal law N 215-FZ dated December 22, 2004 "On Housing Cumulative Cooperatives" (as in force on 16.10.2006).
Federal law N 117-FZ dated July 11, 2001 "On Credit Consumers' Cooperatives of Citizens" (as in force on 03.11.2006).