Mortgage liability is a key concept in the field of mortgage loans. In this article, we will explain what it consists of, how it is calculated, and what its implications are.
In this regard, mortgage liability is the obligation a person assumes when signing a mortgage loan contract, committing to pay the debt acquired for the purchase of a real estate property.
In that contract, the commitment that this person has to pay the debt contracted for the acquisition of a real estate property is identified.
Therefore, mortgage liability identifies the maximum economic amount for which the property responds. It is a concept required in case the loan defaults lead to the foreclosure of the mortgage.
It is, therefore, a kind of defense and information mechanism for third parties, especially for banking entities or lenders.
Mortgage liability is regulated by the Mortgage Law, based on the decree of February 8, 1946. The articles relating to this concept are the following:
- Article 105: relates mortgage liability to compliance with Article 1911 of the Civil Code, regarding the liability of a debtor to their creditors.
- Articles 106, 107, and 108: regulate how the foreclosure process should proceed, in order to guarantee the rights of the debtor.
- Article 109: specifies that if the sale of the property yields an amount higher than the mortgage liability, the difference must be delivered to the debtor, after having paid the corresponding debt amount, interests, and relevant expenses.
Costs and expenses for mortgage liability
Mortgage liability is made up of several costs and expenses. They are the following:
- Economic amount: the amount requested by the user from the bank for the mortgage, understood as the capital or amount of the loan granted.
- Interest: the total amount of the sum of interests, both ordinary and late payment (default) interest, calculated on the capital granted.
- Other costs: legal costs and foreclosure expenses which, in no case, can exceed 5% of the principal amount borrowed.
What is the maximum mortgage liability?
In principle, mortgage liability is not determined. It is established in case of default on mortgage payments until its foreclosure.
Therefore, if it has to be applied, what is known as maximum mortgage liability is used, which is actually the maximum amount up to which the mortgage guarantee can respond.
How to calculate mortgage liability?
The calculation of mortgage liability is carried out based on the sum of the concepts identified above. More specifically, the following considerations are taken into account:
- The amount of the loan, which will represent the sum requested by the debtor and received by the lender.
- The interests, both ordinary and also those corresponding to the delay in payments, are calculated based on the loan that has been granted.
- The foreclosure expenses of the mortgage liability and the legal costs (as we have indicated previously, they cannot exceed 5% of the principal amount borrowed).
It should also be noted that most financial entities simplify this operation and calculate the mortgage liability by adding to the amount of the mortgage loan a percentage that can vary from 30% to 50%.
In conclusion, mortgage liability is an essential concept in mortgage loans, as it defines the maximum amount that a property can respond for in case of non-payment. This amount includes the borrowed capital, interests, and additional costs, such as legal costs. It is important to understand how it is calculated to avoid surprises and ensure compliance with mortgage obligations.