How much does a mortgage cost? All the taxes of a mortgage to buy a home


How much does a mortgage cost? All the taxes of a mortgage to buy a home

Real Estate Insights May 01, 2014 No Comments
There is much talk these days about mortgages, interest rates and spreads so what, in reality, are the costs that you incur if you choose to apply for a mortgage in Italy? Here to explain it in more detail is our expert, Dr. Efisio Borrelli.

The costs involved in obtaining a mortgage cover the following;

• Bank fee for credit checks, suitability etc

• Survey

• Property Insurance

• Life insurance

• Substitute tax (Government tax)

• Notary/legal cost

As far as the cost of the Bank’s fee is concerned, it is generally equal to 1% of the mortgage and the bank retains this amount before the mortgage loan and funds are released to the client.

The cost of the survey is €390 and this fee must be paid on the day of the inspection. This fee is paid directly to the surveyor who has been instructed by the Bank to assess the property.

Property insurance is mandatory in Italy. The insurance covers the risk of fire and explosions and must be in place for the duration of the mortgage.

This again is deducted from the amount of the loan and is calculated by multiplying the coefficient (the number used to multiply the variable) for each €1,000 of mortgage. Below is a summary table

Duration coefficient

10 years 2.78

15 years 5.09

20 years 5.80

Let us look at some examples. For a mortgage of €100,000, with duration of 15 years, the cost of property insurance will be € 509. For

a higher mortgage of €320,000, meanwhile, the cost will be €1,856 as outlined below;

• 100,000 15-year mortgage

100 x 5.09 = 509 Euros

• 320,000 20-year mortgage

320 x 5.80 = 1,856 Euros

Life insurance is optional BUT, in some cases, the bank may require the customer to take out life insurance as a condition of the mortgage offer. The life insurance policy has a fixed cost and depends on the age of applicants. Normally the cost will range from between 2% to 6% of the amount of the mortgage. This is paid or deducted from the amount of mortgage or, in part, paid directly to the company or broker.

The substitute tax is a tax that the Italian Government takes on all mortgage loans. The amount is 0.25% if the property is your main residence (you have to take residency within 18 months of purchase). If the property is a second home, however, this tax rate is increased to 2%. Again, this tax is deducted from the loan amount before the funds are released to the client.

The disbursement of the loan contract is made by a notary in the presence of the buyer, the bank and the seller of the property which is the subject of the purchase. Notary costs for signing loan contracts ranges from €1,500 to €4,000. This cost will depend on the amount of the mortgage as well as the notary so it’s best to find out the likely cost beforehand.

If, for some reason, you are not able to be present on the day of signing with the notary, someone else can act on your behalf by way of a ‘power of attorney’.

The power of attorney will be shown all the details and specifics of the mortgage that you have chosen and that the bank has offered. The power of attorney will then sign for the mortgage loan that has been authorized.

Earlier I talked about the main property as the Government will offer discounts on this type of mortgage. It is very important, however, to

check with your real estate agent to ensure that the property you are about to purchase can be considered as your first house. The examples below serve to illustrate the differing costs between a first and second home purchase.

• Example- Main House

15-year mortgage, Applicant age 40 years

• Amount of loan 300,000

• Bank Commission 1% 3,000

• Property insurance 1,527

• Life insurance * (optional) 6,200

• Substitute Tax 1st house 750

Total costs 11,477

Net loan amount 288 523

• Example Second Home

15-year mortgage, Applicant age 40 years

• Amount of loan 300,000

• Bank Commission 1% 3,000

• Property insurance 1,527

• Life insurance * (optional) 6,200

• Substitute Tax 2nd house 6,000

Total costs 16,727

Net loan amount 283 273

Costs to be paid directly:

• Cost of survey 390

• Notary 2,000

To request a detailed quote and to verify YOUR eligibility visit the website www.bestitalianloan.com

Dr. Efisio Borrelli

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