Pre-mortgage loan for housing buyers

The most common case where pre-mortgage loans are used is when the real estate has not yet been entered in the real estate register or the seller refuses to sign a pledge contract. From the practical point of view a pre-mortgage loan is a special phase of the working of a mortgage lasting up to the moment when lien on the real estate is submitted to the real estate registry office. That can only happen once the flat is entered in the real estate register at least as an unfinished item of real estate. The pre-mortgage loan is automatically approved and signed at the same time as the mortgage loan.

Put simply ? once the flat is finished and entered in the real estate register, a petition for entry of the lien securing the mortgage may be submitted. As soon as the lien is entered in the real estate register, the pre-mortgage expires and the mortgage loan automatically starts. The client pays off the mortgage loan in regular monthly instalments at the interest rate agreed in the loan contract, so the size of the debt starts to decrease. The way the pre-mortgage loan works is that while the flat is being built the client only pays interest on the money that the bank released for the construction up to the given moment. This means that the size of the debt does not decrease while the pre-mortgage loan is in effect ? only interest is paid on the sums drawn. The interest rate on a pre-mortgage loan is around 7% p.a.

If, from the user?s point of view, a pre-mortgage is just a ?phase in the life of a mortgage lasting until the lien on the flat can be submitted?, in legal terms it is a separate loan that ceases to exist when the mortgage is established. The maximum duration of a pre-mortgage loan is usually 12 months.