When granting a mortgage, the bank takes the risk that the client will not repay the amount borrowed for the purchase of his own home. In order to secure its claim, usually in the order of several million crowns, it makes the granting of a mortgage conditional on the agreement of a mortgage on the property. The mortgage therefore acts as a kind of insurance. If the client fails to repay his/her debts over a long period of time, the bank may, as a last resort, sell the mortgaged property. The bank will then use the proceeds from the sale of the property to repay the amount owed.
Which property can be mortgaged?
In most mortgages, the lien is placed directly on the property being purchased. Most often it is an apartment, a house or a building plot. The mortgage can also be secured by a cottage or chalet. However, the condition is that the property must have a registration or description number and be habitable all year round.
A property other than the property being purchased that is owned by the mortgage applicant may also serve as collateral. In practice, another property is used, for example, to re-secure the mortgage, usually in a situation where the value of the property being purchased is too low for the bank. Pledging one’s own real estate is also to be taken into account with an American mortgage.
The bank will also accept real estate owned by another third party as collateral. For example, it may be a property owned by parents, relatives or friends. However, an agreement between the mortgage applicant and the owner of the property is required.
The lien is registered in the Land Registry
The bank’s lien is always registered at the Land Registry. The pledge does not limit the property rights of the property owner. Therefore, the apartment, house, land or other real estate can be used by the owner on a regular basis. After the mortgage has been repaid in full, the bank issues a certificate of termination of the lien and the relevant cadastral office deletes the lien.