A mortgage is a document that provides security for a loan. If a borrower cannot pay his or her debts, the borrower, often a bank, can sell the property secured by the mortgage.
If you want to buy real estate, it will often be a requirement that the lender can obtain a mortgage on the real estate. In this post, we will explain what a mortgage is and what types of mortgages exist.
If a borrower wants to borrow money, the lender typically requires that they can obtain a mortgage on one or more assets. This is done through a mortgage deed. The mortgage allows the bank to settle their claim by taking and selling the mortgaged assets.
The function of a mortgage deed is to allow the borrower to secure his or her assets without having to sell them. So, if you own real estate, you can mortgage your property in order to use its value to obtain a loan without having to leave your home.
The mortgage can be used as alternative financing when buying a house. You can read more about alternative financing options here, including crowdlending.
If you're looking to buy a home, read our guide to borrowing here. You should also familiarize yourself with loan proceeds if you're looking for a loan.
A common feature of all mortgages is that the lender has a mortgage on an asset which the lender can sell in the event of a breach of contract. There are four types of mortgages: owner mortgages, vendor mortgages, mortgage deeds and indemnity mortgages. We will go through them here.
A mortgage deed is the most common type of mortgage. It is mainly used by banks when issuing loans. It is a sub-mortgage of your property, where you grant a mortgage to yourself, which you lend to the bank in exchange for the bank granting you a loan.
The bank then draws up a so-called mortgage deed, which is their proof that they have a mortgage on the property. Once the loan has been repaid, you will again have full rights over the mortgage. If necessary, you can then use the same mortgage to take out a loan.
The seller of a property can issue a vendor's mortgage to the buyer, allowing the buyer to pay the purchase price in installments instead of in a single payment.
Vendor's mortgages are often used in a family context, for example if you want to transfer a property to your child who can then pay the sum over a longer period of time. However, this type of mortgage can also be used if the property is difficult to sell and the buyer only wants to take over if he or she has to pay the purchase price in installments.
If you take out a mortgage loan for the purchase of real estate, the mortgage lender will secure the loan by means of a mortgage deed. This gives the mortgage lender a mortgage on the property, which they can sell if the borrower defaults on his or her payment obligations.
An indemnity bond is a mortgage deed used to ensure that a creditor can get their money back if you have an ongoing debt to them. Indemnity bonds are typically used to cover debts from flexible loans such as overdrafts or promissory notes, as these types of debts can increase over time. Indemnity letters are not used for home financing.
When the borrower pledges an asset, usually real estate, as collateral to the lender. The lender is then assured that they will get their money back - either by the borrower paying or by the lender selling the asset they have secured the mortgage on.
It is the mortgage that has value for the lender, as it can ultimately be sold and used to repay the debt that the borrower is unable to pay. The mortgage deed is the legal document that proves that the lender has a mortgage over the borrower's asset.
Mortgage deeds contain information on how much of your property you have mortgaged. The mortgage deed will also contain information about the loan you have obtained on the basis of the mortgage you have pledged as collateral.
The mortgage deed will also state if there are other people who have a mortgage on your property and how they rank in the order of priority.
The order of priority is the order in which mortgage holders' claims are satisfied. This happens if the borrower is declared insolvent and the mortgage is to be sold and the proceeds used to repay the debt. In the event that there are multiple mortgage holders, these will have priority.
The priority position depends, among other things, on the asset that is mortgaged and the rules of the Land Registration Act. A mortgagee who is first in priority will be paid first when the mortgage is sold. If there is money left over, it will go to the next in line.
All mortgages must be registered in order to be valid. Registration is the public recording of a right over a property. If a bank has a mortgage on your property, it must be registered before it can be enforced.
Registration is done by notifying the mortgage for registration at the Land Registration Court. At tinglysning.dk you can fill in a registration document, after which the Land Registration Court enters it in the land register.
When you register a mortgage deed, you have to pay a registration fee and a stamp duty.
When registering a mortgage deed with a mortgage on real estate, the registration fee is DKK 1,730, while the stamp duty is 1.45% of the secured amount.
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