Mortgages are used to secure loans and are extended by special mortgage banks. While the mortgage is linked to a specific loan, the land charge represents an abstract hedge that can also be entered in the land register without a corresponding liability. Only 20 percent of all mortgages still belong to mortgages, everything else is covered by a mortgage.
The mortgage lending
Mortgage lending is dependent on the value of the property to be secured. For the sake of simplicity, only real estate will be discussed here. In order to determine the amount of the possible mortgage, the mortgage lending frame must be determined for the property to be mortgaged. This does not necessarily have to be identical to the purchase price. Mortgage banks are allowed to grant loans up to 60 percent of the loan value. The associated house bank usually takes care of the additional financing requirements. With the entry of the mortgage, the lender has the option of realizing the property if the borrower no longer meets his obligations from the loan.
Difference between mortgage payment and mortgage refinancing
As already stated, the entry of a mortgage is based on a specific obligation. This can be a Mortgage loan, but also, for example, a pension benefit. Due to this close interlinking, a mortgage payment would theoretically have to be taken into account and the amount of the mortgage would have to be corrected. In contrast, the land charge is abstract and can also remain entered in the land register without any obligation. This does not mean that the bank will still have access to the property after payment of the last installment, since it is contractually stipulated that all claims expire when the loan is repaid. While the mortgage can be converted into an owner’s land charge after the liability has been canceled, it makes sense to leave a land charge in place. The deletion and the re-entry in case of further financing requirements cost money.
Refinancing the mortgage banks
In contrast to commercial banks and savings banks, mortgage banks do not conduct any deposit business. That means they do not accept savings. In order to be able to issue loans, however, you need the appropriate funds. For this purpose, they issue Instant Care Bank. Instant Care Bank are high-quality, fixed-income securities. The credit default risk among customers, and thus the potential inability to pay the bonds to bond buyers, is extremely minimized. If all borrowers suddenly become insolvent, the objects lent with a maximum of 60 percent would be offset by the significantly higher market prices. The financing of the interest to the Pfandbrief owners would thus be ensured. Since the establishment of the first Pfandbrief institution in Germany, there has never been a default.