What do we mean by a mortgage certificate and what is it used for?
October 4, 2024 / chw
If you wish to buy or renovate a home, you will undoubtedly need to take out a mortgage and therefore have a mortgage note drawn up. But what do we mean by “mortgage note”?
In Switzerland, the majority of people planning to acquire or renovate their home take out a mortgage loan.
A mortgage is a loan guaranteed by a pledge, in principle the real estate financed, which must be repaid on the set deadline. If, unfortunately, you are unable to do so, the creditor (i.e. the financial institution which granted you the credit) could assert its right of real estate lien and seize or realize the building, that is to say, sell it, in order to be reimbursed for the money she lent you.
It is obvious that the pledged property cannot be kept at the bank in a safe. Therefore, to certify that the house or apartment serves as security for the mortgage, it is necessary to draw up a document – the mortgage certificate – and register it in the land register.
Good to know: the mortgage certificate is kept by the bank, since the real estate pledged returns to it in the event of default in payment of the mortgage (property lien right).
What about the amount of the pledge?
On the mortgage certificate appears, in addition to the real estate lien and the name of the creditor, the amount of the pledge. The latter indicates the maximum amount you can borrow. However, the mortgage certificate does not provide information on the actual amount of the debt. Whether the mortgage loan is partially or fully amortized, the maximum amount does not change.
What is important is that the amount of the pledge must be at least as high as the amount of the mortgage. In some cases, it may be wise to agree on a higher sum in order to have some leeway, particularly if you wish to undertake renovation work for which you will certainly need money. You would then not have to establish a new mortgage note even if you had to increase your mortgage, which would save you time and money.
Example: the Müller family took out a mortgage of 550,000 francs over 10 years for the acquisition of their house. The amount of the pledge entered in the mortgage certificate is 600,000 francs. Consequently, if the Müller family wishes to renovate their property, they will be able to take out a new mortgage of 50,000 francs, without a new mortgage certificate having to be established. Of course, this request will be subject to analysis by the bank and the family must be able to assume the long-term financial burden associated with a higher loan.
What are the ranks of mortgage notes used for?
If you want to increase your mortgage but the amount of the pledge listed on the mortgage note is not enough, you must establish a new one. As soon as you have several, they are assigned a rank.
It is in this order of priority that the lenders can assert their claims against the loan taker, if the loan is not repaid: the creditors whose pledge is of prior rank are paid first , the following having to be satisfied with the balance. Thus, the higher the rank, the higher the risks for the creditor.
Paper mortgage certificate or register certificate: which to choose?
The mortgage certificate exists in paper format (value paper) and, since 2012, in electronic format (register schedule). Although both guarantee the real estate lien of the creditor, generally a bank, they have differences.
A paper mortgage note is a “physical” security document. It is either registered or bearer. While the nominative certificate is registered in the name of the creditor, the bearer certificate is registered in the name of its holder.
The registry mortgage certificate is a “virtual” certificate. It only exists in electronic format and as a nominative certificate. Thus, its conservation is much safer and less expensive and the risk of loss is eliminated. Today, all new mortgage certificates are issued in dematerialized form. In addition, paper schedules that must be modified due to a transfer of ownership, for example, are in principle converted into register schedules.
How much does a mortgage note cost?
Both the establishment and the modification of a mortgage certificate require the authentic form and must therefore be executed by a notary. The related costs vary from one canton to another. In the canton of Fribourg, approximately 1.2% of the established/modified amount is required.
Should we request the cancellation of a mortgage certificate once the loan has been repaid?
Once the mortgage debt has been fully amortized, it is possible to request to transfer the right of lien, that is to say to register it in the name of the owner of the building. If it is a paper schedule, you can simply request that the document be given to you. It will then be your responsibility to keep it intact and keep it in a safe place, because a damaged certificate is declared void. (So refrain from punching it to keep it in a binder!)
A certificate can be removed from the land register with the consent of the creditor. An application must therefore be filed with the competent office. It is important to know that a certificate does not expire: it is therefore not essential to write it off when the mortgage loan has been repaid.
It is even more judicious to refrain from doing so if you intend to take out a new mortgage. This way, you will not have to draw up a new mortgage certificate and go through a notary again. Written off or not, the certificate does not influence the decision to grant the loan, because what is decisive are above all the amount of the loan and the bearable burden of the mortgage.
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