Mortgage expenses – Part I, linked to the Bank
When we think about our future mortgage, we do not always immediately worry about what expenses we will have to pay . In fact, often our first thought goes to the installment we will have to bear. But let us clear the field of doubt immediately and immediately see the difference between installment and expenses , to avoid confusion.
Installment and mortgage costs
– The mortgage payment is the amount we will have to pay periodically, often on a monthly basis, to pay off our debt. It consists of a capital share and interest, which ultimately constitutes the cost we have to bear for the capital advance we have obtained.
– The other expenses are those that instead pertain to the costs of the practice of mortgage, to the taxes and to all that in general it is not strictly connected to the mere remuneration of the capital that has been disbursed to us.
Wanting to distinguish the different types of expenses that we will have to face, we could use different approaches but perhaps the most useful one is based on the division between two categories:
– expenses to be considered for the choice of the bank that will provide us with the loan ;
– expenses not dependent on the bank .
In this section we deal with the first of these two categories.
Expenses to be considered for the choice of the bank that will provide us with the loan
This category includes:
– preliminary investigation costs ;
– appraisal costs ;
– home insurance costs .
The preliminary expenses are those expenses that the bank asks to cover the activities necessary to assess whether or not to disburse that specific loan to the customer, for example the assessment of income and its compatibility with the installment to be paid. These costs are often determined to a fixed extent by the bank, but there may also be significant differences between banks (amounts ranging from 100 or 200 euros to even 800 or 1000 euros). In other cases, the bank determines them to a variable extent with respect to the value of the amount disbursed (generally less than half a percentage point). Some institutions have the policy of eliminating this cost from the customer : it considers that the bank remunerates its services also and above all on the basis of the interest applied, therefore the greater or lesser amount of this expense may also and above all depend on the commercial policies of the lending institution
The costs of the appraisal are instead those expenses that should cover the costs to evaluate in a strict sense the value of the property that will constitute the main guarantee for the bank for the amount paid. Also in this case, this expense will be fixed by the bank (more rarely percentage) and with values that are not too different from those we have highlighted for the preliminary investigation expenses. Also in this case some banks set aside this cost which, as for the preliminary costs, could be remunerated directly by the interest quota defined in the loan contract.
Insurance costs, on the other hand, can be higher, especially for long-term mortgages or with large amounts paid: these are the costs associated with insurance (generally due to fire) that the bank requires to open to cover any damage to the building that would make its guarantee function for the bank disappear, in whole or in part. The cost is generally proportional to the disbursed capital and depends strictly on the duration of the loan (it is often defined as an annual cost that must be multiplied by the duration of the loan itself). Also in this case some institutions reset it, or rather they consider it included in the mortgage payment that will come to pay. These costs also depend on the bank, which effectively requires the customer to choose the insurance to be activated. It is a cost that is sometimes not considered unless it is requested directly from the bank, or rather from the consultant of the institution that is following our mortgage practice.
The advice of Mister Banca
In the selection of the banking institution also the evaluation of the accessory expenses can be relevant. We must in fact bear in mind a very important principle: a higher interest rate will have the effect of increasing the installment, and it is therefore fundamental to be able to assess the impact on our future standard of living. Preliminary, expert and property insurance costs, however, are in most cases costs that we will have to bear immediately , in the initial phase, in a moment that is often of maximum economic commitment (for example because we are purchasing a property). These expenses will therefore erode a part of the capital that will be available immediately, and therefore it is good to have them clearly present immediately.
Finally, in the comparison between mortgages, in addition to the interest rate applied, it also assesses the Global Effective Annual Rate (the APR) : it is a synthetic cost index which in fact also takes into account ancillary expenses.