A mortgage is a contract by which a lender, a bank, grants a loan to a borrower, in order to finance the purchase, construction or renovation of a house or an apartment, or the acquisition of a ground.
The borrowing capacity
The granting of the mortgage depends on your ability to repay the loan. The Law of 23 December 2016 implies that your bank must analyze your ability to honor your credit agreement. To do this, the bank calculates the difference between your income and your monthly expenses: insurance, rent, reimbursement of other loans ... These charges must not exceed 30 to 40% of income. The calculation is done on the basis of information on your financial situation. These are documented and kept by the bank.
The amount to be borrowed is determined by the total costs related to the real estate project, less your funding resources: savings, donations, proceeds from the sale of another property...
The real cost of a mortgage
It costs money to take out a mortgage. In addition to the amount initially loaned, there are additional charges that determine how much you actually have to pay back. Here is an overview of the costs involved:
- Fees for processing the file by your bank
- Interest rate: fixed, variable or mixed. Prices vary from bank to bank. Do not hesitate to compare them to choose the best rate for you.
- Outstanding balance insurance: this will cover the amount to be insured in the event of death.
Take the time to think carefully and compare the offers. The Law of 23 December 2016 gives you 14 days to refuse the credit, if it might be the case.
The duration of a mortgage loan
The duration of a mortgage contract varies depending on the amount borrowed, your needs, your income and the nature of the property purchased. Warning: it is better to have finished repaying your mortgage before retirement age, because this leads to a drop in income, and therefore a drop in repayment capacity.
The term of a mortgage loan in Luxembourg can be up to 30 years.
I want to repay my loan before the end of the original mortgage contract. Is this possible?
Yes, you can repay your mortgage early. You will have to pay a certain amount to your bank to compensate it for the financial losses. The law of 23 December 2016 clearly defines the limits of this compensation.