Mortgage loans (and other types of loans) are increasingly complex products, with contracts written in overly technical language that is difficult for consumers to understand, making it difficult to choose and compare offers from different banks. It is essential to know how to decode the convoluted provisions that are used.
Before signing a credit agreement, the information provided to consumers should be clearer and easier to understand. The use of inaccessible language leads to disputes and reduces credibility.
We therefore propose to simplify or decode some of the language used by credit institutions when granting a loan.
Solvency analysis - what is it, anyway?
If you are going to apply for or increase a loan, particularly for housing, you should assess whether you have the ability to pay it back.
However, the bank or financial institution that will grant the home loan or mortgage also has a duty to assess whether the customer has the financial capacity to fulfill the commitment that will arise from the credit agreement. This is the “analysis (or assessment) of the debtor's creditworthiness.”
This assessment must be carried out before the loan is granted and must be duly substantiated, based on a set of factors and information that may be requested from the consumer.
Relevant factors in this analysis:
- age
- financial situation
- income
- regular consumer expenses
The bank will also assess credit liabilities and their weight on consumer income, namely by consulting databases such as the Credit Liability Map of the Bank of Portugal's Credit Liability Center, provided that issues related to personal data protection are safeguarded.
The difference between the value of the property and the amount of credit requested will not be a decisive factor, except for credit for construction or renovation work.
A possible future pessimistic scenario should also be assessed, with a possible negative impact on the consumer's ability to comply, namely a possible drop in income, an increase in expenses or interest rates, if the credit is variable or mixed rate.
Source: idealistanews