The Main Directorate of the Central Federal District of the Bank of Russia announced the sharp increase in mortgage issuance with the desire to improve the living conditions of Russians. Investing in real estate is also a way to protect money from depreciation in the current economic environment. But a mortgage loan cannot be called a guaranteed means of saving money, because the payments, as a rule, are spread over several years. And in the event of force majeure, the debtor runs the risk of falling into the debt pit.
“Job loss, sudden illness, and other unforeseen life situations are real risks for clients when providing mortgage services. Getting out of the debt hole and protecting the dwelling is not an easy task, but it can be solved, ”said Alexei Arzamaskin, an expert of the Main Directorate of the Central Federal District of the Bank of Russia.
The expert explained that for Russians, the most accessible financial instruments that will help pay off the mortgage debt without losing an apartment are refinancing and credit holidays.
refinancing
At the household level, people refer to refinancing as refinancing. Actually, this is true because technically we are talking about repaying a loan that has already been given by making another loan. In the case of a mortgage, a new loan is given against the guarantee of the same real estate, but on more favorable terms.
To refinance your mortgage, the borrower must apply to the bank with the loan or another financial institution that will issue a new home loan to close the existing mortgage.
Typically, mortgages are repaid in annual payments and most interest is paid in the first few years of repayment. For this reason, it would be beneficial to apply for refinancing if new loans have been given with lower interest rates or if a large part of the refinanced loan has not been repaid yet. Under these conditions, the overpayment for the use of borrowed money is indeed noticeably reduced.
As explained in the Central Bank’s Main Directorate, the actual amount of the overpayment discount depends on the interest rate and maturity of the loan. For long-term loans, it is common practice to reduce the rate by 1-2 percentage points after refinancing.
Also, refinancing may not only be financially beneficial.
“This operation is in demand among those who repay more than one loan at the same time. By using this service, you can combine all loans and pay to a single bank once a month,” Arzamaskin explained.
credit holidays
Mortgage vacations allow the borrower to delay loan payments for six months or reduce them to a comfortable size. The Russians had such a right by Law No. 76-FZ, adopted in 2019. A number of conditions must be met in order for the loan to be deferred. The debtor’s property only needs to be registered with the residence from which the loan was taken. The mortgage must be for the property. Previously, the borrower had not restructured his debt, and the amount of the unpaid part of the loan did not exceed 15 million rubles. You must also provide evidence that the debtor has had life difficulties, such as dismissal, illness, major unplanned expenses.
According to the Central Bank of Russia, residents of the Central Federal District received deferrals for more than 3,000 loans in the period from March 2022 to June 2023, totaling 12.8 billion rubles, as part of mortgage holidays. Of these, more than 2.5 thousand postponements in the amount of 11.6 billion rubles were issued in the Moscow region.
In addition, a significant number of mortgage borrowers arrange holidays under the banks’ own schedules, making it possible for a period of time not to pay off the debt or simply interest.
“Although after the end of any credit holiday people will have to return to their normal payment schedule and have to pay the bank in full at the end of the loan term, the demand for delay remains. Now most borrowers prefer to notify the bank if they have problems in paying off the debt, and during the provided holidays either solve their temporary financial difficulties or agree to repay the loan by selling an apartment as a pledge, ”explained the Bank of Russia expert.
What to choose for the borrower – credit holidays or refinancing, depends on the situation.
“Credit holidays are a sensible precaution, for example in the event of a forced job change or a sudden illness. Refinancing is a tool used to reduce the credit load in a planned manner,” explained the Central Bank’s Main Directorate.
How to sell a mortgage flat on your own
According to the State Central Bank, it makes sense to consider selling the mortgage flat both in case of problems repaying the loan and in cases where the property itself has become redundant.
In addition to the situation where the borrower risks losing an apartment completely due to the collection of the mortgage debt through the courts, it is advisable to sell a loan apartment in case of a significant change in living conditions, for example, to move out. Representatives of the Main Directorate of the Central Bank of Russia noted that he was directed to a permanent place of residence in another region. Or in the event that the liquidity of the apartment drops sharply.
Technically, to sell a mortgaged flat, you need to follow five steps: get the bank’s approval for the deal, find a buyer, close the deal, pay off the mortgage, and lift the lien. The latter can be done automatically by Rosreestr within three working days of receipt of the entire package of documents.
“In response to the Central Bank’s rate hike to 12 percent per annum, many real estate agents have increased the price of their properties. Therefore, options that were not prioritized, for example due to collateral in a bank, are now fully evaluated, especially if there is a discount and there is no delay in the seller’s loan,” said senior lawyer Zalimkhan Magomedov. European Law House.
When is it profitable to buy a mortgaged flat?
Although it may seem paradoxical, it is beneficial to purchase a mortgaged flat at a discount for those who can qualify for a mortgage loan. Especially if the buyer is served by the same bank as the home seller. Also, buying a mortgaged apartment at a discount is a good opportunity for Russians who apply for a concession mortgage, since, according to the law, such a mortgage implies a limit on the amount of a possible loan.
“The cost of mortgages can increase when the key interest rate rises. However, the rates of preferential government programs for housing purchase, for example, did not change. Alexander Popandopulo, expert of the Main Directorate of the Central Federal District of the Central Bank of Russia, said that the maximum rate for preferential mortgages is 8 percent.
According to experts, buying a mortgaged flat is a chance for priority mortgage applicants, primarily because of the price. As a rule, mortgaged flats are sold at a below market price, and concession borrowers can have enough money. True, so far this does not completely apply to the Moscow region, where sellers of mortgaged apartments purchased 5-10 years ago are trying to offer mortgaged real estate for sale at market price. But experts say they’ll likely have to find funds in the winter to lower prices or solve their problems with the bank.
Experts said that it is definitely not worth buying a mortgaged apartment for which the loan is already in litigation. Ideally, the bank makes no claims for reimbursement of the delay. It is also worth checking the presence of debts on insurance payments and payment of the communal flat of the purchased house.