I have sat on transactions with a notary many times and every time when a mortgage/collateral or from Estonian (hüpoteegi seadmine) is touched upon, this topic raises a lot of questions from buyers and sellers.
A mortgage is a pledge of real estate. If you buy an apartment with a loan (through a home/mortgage loan), then the bank wants to secure the loan, and a mortgage on the property is usually set up for this purpose. The person (in this case, the bank) in whose favor the mortgage is established is called the mortgagee. It is also possible to take out a mortgage on real estate not bought on credit. The owner of the immovable must agree to this, and then he or she will become a party to the transaction.
The mortgage is a guarantee for the bank that in case of non-payment of the loan, the bank has the right to demand the sale of the secured real estate (apartment, house) and satisfaction of the claim with the money received. However, it is possible that the sale of the mortgage will not be enough to satisfy the claim, so banks usually overestimate the value of the collateral. The last times, if my memory serves me right, banks use the formula desired loan * 130% = security deposit (hüpoteek) to be established / linked to real estate. How can it be that the amount of the deposit is greater than the value of the property? This is a kind of additional guarantee for the bank. If the price of real estate increases, then the bank, in the event of a problematic transaction, will be able to sell the property and cover all additional costs.
If there are problems and the bank is not paid a loan and interest?
Even if there are difficulties in repaying the loan and the solution is to sell the property, the bank usually allows the clients to sell it themselves in order to get the best possible price for the property. However, if the case has reached the bailiff (enforcement proceedings have been initiated), then the client / creditor will no longer be able to influence the sale process and the bank will sell the property as it suits him.
Registration of a mortgage takes place through a notary. The mortgage is recorded in the land register. An entry in the Land Register shall indicate the mortgagee and the monetary amount of the mortgage, i.e. the amount of the mortgage. Online https://www.rik.ee/et/e-kinnistusraamat you can make a request for 3 euros and get a comprehensive amount about the property and related mortgages. Here is an example.
Mortgage / pledge does not prevent you from selling your apartment or house if necessary. In the event of a sale, the cancellation of the old mortgage may be agreed, in which case you need to agree with the bank on the termination of the loan agreement. Changing a mortgagee or changing the terms of a mortgage is usually cheaper than removing and resetting.
With the passage of time and the repayment of the loan and the appreciation of your property, you can take out additional money-loans, using the same property as collateral. You can also reduce the amount of the mortgage-collateral if your credit load has already decreased significantly over time. Sometimes banks even go completely to the meeting and rent-remove real estate from under the mortgage.
Important!
If you repay the loan, this does not automatically end the mortgage. The mortgage ends with the deletion of the entry from the Land Register, and not with the expiration of the secured credit claim (by the agreement between you and the bank). You are not required to cancel the mortgage when you receive one of the loan payments, but the mortgage may remain, for example, in case you want to borrow again in the near future from the same bank. Why do they do it? To just save money, since tying or untying a mortgage at a notary costs money :)
You can also mortgage your property if you are not taking out a loan now but think you may need a loan in the future.
And also the amount of the mortgage, for example, in the example above from the statement in the amount of 195 euros, does not mean that the bank suddenly has to take all this money. The bank can only take the money you owe it :).
Do you have any questions? I'll be happy to answer them in the comments! Likes and reposts I really love and welcome! 🙂