Debt Brake and FAIR Bank Act

24 Sep

Here are the 10 points that the Debt Relief and FAIR Banking Laws have changed mortgage borrowing and the rules for the home loan market .

Limit the excessive retail borrowing and the transparency of mortgage borrowing

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The GFI’s Debt Brake Regulation effective as of January 1, 2015 and the FAIR Bank Act effective as of February 1, 2015 limit the excessive retail borrowing and the transparency of mortgage borrowing. The debt brake regulation changed on 01.10.2018 and includes GFI (income load indicator) tightening.

  1. An income proportional installment indicator is introduced, which defines a maximum for the proportion of verifiable income to the total amount of installments that can be taken.
  2. The loan-to-value ratio has been re-regulated. Since the entry into force of the FAIR Bank Act, the amount of home loan or vehicle loan that can be taken is limited by the value of the collateral provided for the loan.
  3. Obtaining legal income is essential to take out home loans , other mortgages and any other type of loan.

Income debit from October 1, 2018:

Coverage of collateral:

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At the end of November 2014, the Parliament adopted the so-called FAIR Bank Act, which regulates the bank’s obligations and tasks related to the lending of banks, but most of all to mortgages. The FAIR Bank Act allows lending to take place in a predictable, transparent and fair manner.

It is important that previously concluded home loans and other credit agreements are also regulated.

Our company has put together a bunch of key information to help our clients who want to take out a home loan understand their contractual rights.

Instead of self-interpretation, we recommend that you seek the help of our independent credit broker !

Instead of self-interpretation, we recommend that you seek the help of our independent credit broker !

Sean Cole has a clear focus on retail mortgage lending, so here’s what the FAIR Bank Act requires for home loans.

  1. PRE – CONTRACT REVIEW

In the case of mortgage, home loan and real estate leasing contracts, banks must hand over the contract at least 7 days prior to the conclusion of the contract, so that they can read it smoothly, even with the help of a specialist (eg an independent credit broker ).

  1. INFORMATION ON THE FINANCIAL PERFORMANCE ASSESSMENT

Prior to the conclusion of the contract, the client must obtain information and information from the lender or the credit intermediary enabling him / her to assess whether his / her financial capacity and credit requirements are in line. All the risks associated with borrowing for the client should be identified and the burden of the monthly repayment on the client’s current and future earnings must be understood.

  1. DISCLOSURE OF BANKING AGREEMENTS

Banks should display sample text of real estate loan agreements on their website so that the customer can compare them before making a decision.

  1. COSTS MUST BE CLEARED BEFORE

The practice of unilaterally modifying the term during the term will cease  banks may introduce new fees, as fees and costs that are not specifically included in the mortgage loan agreement cannot be modified.

In addition, all percentage charges may only be given in the currency of the loan, or itemized charges and costs may be charged only in USD.

The cost of real estate loan disbursements is also maximized by the FAIR Bank Act. Thus, the bank may charge 1 percent of the loan, but not more than USD 200,000.

  1. CONTROL OF THE AMOUNT AND FREQUENCY OF INCREASES

The bank may increase the fees only once a year and on April 1 each year. With the exception of loan disbursements, retention fees and early repayment fees, most fees may be increased by the sponsor only on the basis of inflation.

The cost items may be adjusted in proportion to the increase in actual costs and only proportionally.

  1. POSSIBILITY OF INTEREST RATES AND INTEREST RATE INCREASES 

If the loan is for less than 3 years and has a fixed interest rate, the bank may not raise interest at any time during the term. In the case of borrowing for a term of more than 3 years, interest may be increased every three years up to a maximum of five times throughout the term.

In the case of reference mortgages, the total interest rate may move along with changes in the base interest rate. The value of these reference rates is always published on the GFI’s website, so that any upward and downward changes can be monitored.

The bank may never raise the interest rate premium on loans with a maturity of less than 3 years. In the case of loans with a maturity of more than 3 years, you can increase the interest rate premium by up to 3 years, with 90 days notice to clients.

The notice must specify the conditions under which this will occur (you must specify an objective change in the spread).

  1. WHEN CAN ONE-SIDED CONTRACT MODIFICATION BE POSSIBLE?

Unilateral contract modification by banks is possible in the case of interest, surcharge, fees and charges. During the term of the contract, the bank may not rewrite any other contractual terms.

  1. FREE CONTRACT RIGHT OF WITHDRAWAL

If the customer is unable to accept the interest rate or interest rate change due to the fact that the rate changes to the detriment of the customer, he may terminate the contract at no cost and free of charge.

The procedure in this case is to terminate the contract 60 days before the new interest period in writing. In this case, the contract expires and the entire debt is due until the last day of the interest period.

  1. MAXIMUM PRE-CLEARING PRIZE

It can be repaid at any time during the term of the home loan. For mortgage loans, the prepayment fee may not exceed 2.5 percent of the amount prepaid. (the same fee for all other loans is up to 1%)

  1. WHERE IS THE FINANCING AGAINST A BREACH OF A CONTRACT?

If the bank violates any of the above points (eg omitting any content element from the contract), the contract will remain valid (of course, to determine whether any essential element has been omitted), but as the bank breaks the contract, he is obliged to compensate the debtor for any damage.

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