Legal Aspects

Obligations of the two parties

Both creditors and owners have specific guaranteed purchase rights. However, both have to shoulder a number of responsibilities to help the payment process go smoothly.

The signing of a mortgage implies an obligation for both parties involved: creditor and owner, or borrower. Both must fulfil a common obligation: make the contract public and enter it into the registry. However, to guarantee a smooth process, both must satisfy their own obligations. Let’s take a look at these.

Owner or borrower obligations

• Interest payments. This is the fundamental part of the contract for the bank; that is, the bank issues a contract to make profit through the periodic payment of interest by the borrower; interest is simply the amount the borrower pays for receiving the money loaned to them in advance by the bank or financial institution.
  In this sense, it must be specified that there is no limit to the amount charged for the money loaned. Nevertheless, any contracts which specify an interest greater than normal at the moment of signing will be declared invalid. This also applies to contracts specifying benefits for the creditor only and which imply the receipt of an amount greater than that loaned. The interest type may be fixed, variable or combined, and there are several ways in which it can be calculated.
• Reimbursement of capital The borrower must return to the creditor, within a set period of time, the full amount of the money borrowed. Any fluctuations in foreign currency values will not affect either party, unless the repayment amount has been agreed in a specific foreign currency. The two parties will agree on the capital amount to be repaid through periodic instalments. However, interest may vary as these instalments are paid.
The bank, in its own interest, is ensured payment and avoids risk of subrogation with all instalments from the first few years going to interest payments.

Obligations of the bank or financial institution

The main duty of the creditor is the loaning of funds to be later repaid by the buyer. These funds can be delivered in various ways, though the most common is through a direct transfer for the full amount to the property seller, developer or private owner (for the latter, the sale is not of a business nature, whereas the loan is).

However, there is also the developer loan: this is given when a private buyer purchases a plot of land and employs a construction company to build his house. In this case, the private buyer can arrange with the bank a mortgage loan on the property, so the constructor can use the money borrowed to cover the expenses generated by the building.
Although this way the financial institution is lending an amount greater than the mortgage value (the house has still not been built), it is ensured that the funds are used by the constructor only and for a specific use. Once the credit has been transferred and the house is built, the private buyer starts paying instalments, in accordance with the agreed terms.