It is well known that underwriting a loan contract involves an overall expense that concerns not only the reimbursement of the money disbursed, but also a set of elements that together contribute to ensuring that the loan approval procedure is completed. These additional charges are called ancillary.
Although in this guide there is already an article that deals with ancillary costs in general, here below, instead, we want to focus attention on another determining factor: the economic impact of ancillary expenses on the mortgage.
WHAT ARE THE ADDITIONAL COSTS?
Ancillary costs constitute a series of costs that affect the entire financial transaction several times. In practice, the cost of a mortgage depends strongly on the additional costs that the bank, the institutions and the professionals involved require.
The ancillary expenses are contained in the ISC, or in the Synthetic Cost Indicator, present in the banks adhering to the USDpean Code of Conduct for Home Mortgages: this document must be made public by the bank, which must also take care to make it known to its customers.
In fact, the customer must know in time the total cost of the mute, so as not to receive unpleasant surprises in relation to the economic burdens therefore it is concern of the same to worry about updating and getting information about it.
Although an overview of the most common ancillary expenses will be provided below, it is important to state that these costs may vary from one bank to another, for promotional purposes only: comparing the various proposals is the best way to search for save.
It goes without saying that the lower cost of the ISC does not indicate the convenience of a contract compared to another with a higher value; in fact, it is important to check if the expenses normally present are included in this indicator, so that they are not added at a later time, such as, for example, the technical pre-amortization, the appraisal, the account maintenance fees or the parcel of the notary. The advice remains to get good information on the real cost of the loan.
Although it is now known, it is good to remember, the accessory costs that are borne by a mortgage are the following:
- opening bank charges;
- certification fees;
- the costs for professionals;
- the taxes;
- insurance premiums;
- installment collection costs;
- management fees;
- the costs of extinction;
- cancellation of the mortgage.
AN OVERVIEW OF ACCESSORY EXPENSES AND THEIR INCIDENCE ON THE LOAN
In order to further clarify the ancillary costs, an overview of these characterizing elements is provided below.
For example, bank charges are also known as investigation fees, which concern the bank, or the requests it makes to assess the loan application. The economic impact that bank charges have on the loan varies from institution to institution and their percentage value can range from 0% to a maximum of 2%.
In general, however, all banking institutions vary this percentage between 0.50% and 1% and the cost of this ancillary expense is usually deducted from the sum disbursed.
Other ancillary costs are the certifications, or some of the documents that must be delivered to the bank at the time of the loan request.
The certifications include personal ones such as, for example, the residence certificate and the family status, subjected to a mandatory stamp duty of $ 14.62 for each item: the cost increases if it is a joint loan. Furthermore, for those professionals who are enrolled in the register, the certificate stating this registration will be enough, the self-employed will be asked for the certificate attesting, instead, the registration to the CommerceCham.
In the case of a mortgage loan, it will be essential to resort to an expert who checks the value of the property; in this case, the technician authorized to draft the document, chosen directly by the bank, will also request a fee that is usually around $ 200 or $ 300, to which must be added both the 20% VAT and the Cassa Previdenza Contribution which ranges from a minimum percentage of 2% to a maximum of 4%, depending on the category, plus travel expenses must also be added, if the property is located in a remote location.
The notary is another very important figure in the stipulation of a loan contract; in this case the professional’s tariff varies according to the geographical area to which he belongs, but usually the fee is around $ 2,000 or $ 3,000.
All these additional expenses are listed as professional costs. Although the topic of taxes has already been dealt with extensively in another article in this guide, it is necessary to return to the topic to refresh ideas. All mortgage loans are subject to a tax, withheld by the bank itself on behalf of the Treasury: this tax is calculated and deducted directly from the financial amount.
The mortgage tax varies from a minimum of 0.25% to a maximum of 2%, depending on whether the loan is intended for the construction or renovation, respectively, of the property that meets the requirements of first or second home.
Among the insurance premiums the fire policy is the best known, especially when it comes to mortgage loans; in fact, the bank expects the borrower to take out a fire policy to protect the building from possible risks: the policy therefore represents a guarantee of the debt for the bank, since it is bound by liquidation in its favor.
The bank requires the payment of the fire policy in advance: it has an annual value and is around $ 50.
In addition to the fire policy, another type of guarantee required by the bank is the life insurance policy : this request is made when a customer has reached the age of 65/70 to sign the loan. The cost of this life insurance policy varies according to sex, age and the duration of the policy, but on average it is around $ 30 a month.
With the surety policy, the bank protects its investments if a loan is requested which covers about 80% of the real estate value; this policy is an additional guarantee to protect the excess quota. Many banks include this surety policy within the interest rate calculation, but generally the cost of this guarantee is around 0.20% per annum (to be paid in advance).
The installment fees are charged on each installment payment and are around $ 1 or $ 3. It is always advisable to make good use of this item, as many banks increase this cost, raising it up to $ 8.
The operating expenses constitute a series of items that incorporate all the management actions of what concerns the entire history of the loan; for example, these expenses include those related to the issuing of the annual certification of the passive interests or those related to the dispatch of the communications of the rate variation, or the periodic administrative expenses, or the practical management expenses: in any case the cost of such expenses is very modest, as these are postal movements. Operating expenses also include those relating to the renewal of the mortgage, but this applies only to ultra-recent mortgages. For more information about management fees, see the Information Sheet, available at the branches of any bank.
The costs for the repayment of the loan constitute a rate administered in the form of a penalty for the client who decides to pay a part of the financial repayment in advance. For mortgage loans for the purchase or renovation of a property, stipulated by individuals from February 2, 2007 onwards, the law requires that the charges for any cancellation penalty be considered void. In any case the bank cannot withhold the interest accrued after the repayment of the loan. Following the early repayment of a mortgage, the mortgage must also be canceled, which is usually between $ 500 and $ 1,000.
In order to provide an exhaustive, but also brief and immediate, picture of the economic influences that the ancillary expenses have on the loan, a summary table is provided below, an overview of the topic. It was preferred to start with a clear, real example, taking a mortgage on a first home of $ 100,000 as a reference.
INDICATIVE HYPOTHESIS ON A LOAN ON THE FIRST HOUSE OF $ 100,000
|Certifications||Stamps and taxes on certificates issued by the competent bodies||about $ 15 per certificate (at least five certificates are required for a couple)||75 $|
|preliminary investigation||The costs that the bank requires for the evaluation of the practice||between $ 0.50 and $ 1 of the amount disbursed||800 $|
|expertise||The fee of the professional who is in charge of drawing up the report on the value of the property||from $ 200 to $ 300 + 20% VAT, the Pension Fund which can vary from 2% to 4% and any travel expenses||300 $|
|Deed||The notary’s fee and all the expenses associated with the signing of the loan||from $ 2,000 to $ 3,000 depending on the area and the amount of the mortgage registration||2,200 $|
|Substitutive tax||The mortgage tax||0.25% for the first home||250 $|
|Insurance policy||The costs of insurance against the risks of the building||$ 30 or $ 50 per year||40 $|