The loan agreement
The loan is governed by the Italian law by Art. 1813 of the Civil Code, where we find the following definition:
“The loan is the contract by which one party delivers to the other a certain amount of money
or other fungible things and the other undertakes to return as many things of the same kind and quality “.
The Civil Code in this specific case refers to the loan understood as a real contract since
it is connected to the delivery of money or fungible goods, thanks to which the contract is concluded.
The loan can be either free of charge or for consideration and is finalized only upon delivery of the sum of money to the borrower.
Usually, it is a loan for consideration, therefore those who have received a loan of a sum of money,
in addition to providing for its repayment, must also pay a share of interest which is calculated through the interest rate.
This is the specific case of the bank loan required for the purchase and sale of real estate
or building renovations or the one required by an entrepreneur for his business activities (eg investments in research and development, expansion, etc …).
What is a mortgage?
we find the borrower, that is the one who undertakes to repay the agreed sum upon maturity.
A mortgage, therefore, has the characteristic of reciprocity in that
what is loaned must be repaid within a certain deadline.
The interest rate and the installments
The interest rate is in turn defined on the basis of the spread
and a reference parameter that varies according to whether it is a fixed or variable interest rate: in the first case,
reference is made to the IRS (Interest Rate Swap), in the second to the Euribor (Euro Inter-Bank Offered Rate).
The interest rate is identified by theTAN (Nominal Annual Rate).
When a loan is characterized by a fixed interest rate,
this is established when the loan agreement is signed and remains constant for its entire duration,
as well as the amount of all the installments, while if the loan provides for a variable interest rate,
this is established at the time of signing the contract
but is then recalculated periodically for the entire duration of the loan based on the fluctuation of the reference parameter.
There are also variable-rate mortgages with a cap (capped rate)
which provides a maximum ceiling for the interest rate to be applied to the installments.
The type of index used to determine the mortgage interest rate is established in the contract,
as is the method of calculating the rate itself.
In addition to the payment of the interest rate,
the borrower must bear other types of costs both in the initial
and periodic phases relating to management,
such as for example the preliminary, appraisal, insurance, and installment collection costs or notary costs.
The repayment of the loan and the principal amount takes place following the amortization plan,
that is the debt repayment installment program,
which usually breaks down the installments into principal and
interest shares and specifies the residual principal due after each payment.
There are different types of amortization plans which provide for different compositions of the repayment installments.
It is always possible to repay the loan in whole or in part in advance of the expiry date set by the contract,
but to protect itself from this possibility,
the lender could provide for a contractual clause on some types of mortgage
that allows the application of a penalty calculated as a percentage of. to the residual debt.
In the case of first home mortgages,
it is also possible to resort to subrogation, or the replacement of an existing mortgage with a new mortgage,
issued by a different bank, in order to obtain better economic conditions and/or duration.
The subrogation loan does not provide for any expenses or other costs for the user in addition to interest,
but can only be disbursed for an amount equivalent to the residual capital still to be repaid of the original loan.
To protect itself from any non-fulfillment of the payment of the installments by the borrower,
the lender requires guarantees and the most common are:
- Mortgage: in the event of default by the borrower, the lender has the right to have the right to steal the asset offeredas a guarantee, sell it at auction and obtain the sum necessary to pay off the debt;
- Surety: a third-person guarantees the fulfillment of the obligations in the event that the borrower is unable to do so;
- Insurance policies: some are mandatory, others optional;
- Late payment rates.