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Mortgages

Buyers generally pay for their purchase through loans, which they secure by creating a mort-gage in favour of the bank. The mortgage may be accessory or non-accessory, but the latter is much more common.

An accessory mortgage is created for a certain claim and generally satisfied once the secured loan has been repaid. A non-accessory mortgage, by contrast, is an abstract form of security. That means that it remains in place even after the original loan is repaid and can serve as col-lateral for a new loan.

The loan secured by the non-accessory mortgage is defined in a declaration of purpose. The loan is agreed directly between the bank and the borrower in a private contract. Parties should be aware of the special risks of using a mortgage to secure a third party’s obligations, espe-cially if their participation is not required to create the obligation.

Interest rates specified in non-accessory mortgage deeds are generally much higher than the actual interest rate of the loan. The total – consisting of the interest, one-time supplementary payment and nominal amount – is simply the maximum amount that can be secured by the property. However, borrowers only have to repay the amount they actually owe.

If the secured claim is not repaid, the encumbered property may be sold at auction. Often, the bank additionally requires owners to submit to immediate foreclosure of the property and all of the borrower’s other assets (e.g. bank accounts, wages). This gives the bank an enforceable instrument without first having to obtain a court judgement against the delinquent debtor. The delinquent debtor, obviously, has a right of appeal if he believes the foreclosure is unjustified.

For further details
Mortgage glossary (download)