How much does a mortgage cost?

mortgage costThere is much talk these days about mortgages, interest rates and spreads so what, in reality, are the costs that you incur if you choose to apply for a mortgage in Italy? Here to explain it in more detail is our expert, Dr. Efisio Borrelli.

The costs involved in obtaining a mortgage cover the following:

  • Bank fee for credit checks, suitability etc.
  • Survey
  • Property Insurance
  • Life insurance
  • Substitute tax (Government tax)
  • Notary/legal cost

As far as the cost of the Bank’s fee is concerned, it is generally equal to 1% of the mortgage and the bank retains this amount before the mortgage loan and funds are released to the client.

The cost of the survey is €390 and this fee must be paid on the day of the inspection. This fee is paid directly to the surveyor who has been instructed by the Bank to assess the property.

Property insurance is mandatory in Italy. The insurance covers the risk of fire and explosions and must be in place for the duration of the mortgage.

This again is deducted from the amount of the loan and is calculated by multiplying the coefficient (the number used to multiply the variable) for each €1,000 of mortgage. Below is a summary table:

Duration coefficient

  • 10 years 2.78
  • 15 years 5.09
  • 20 years 5.80

Let us look at some examples. For a mortgage of €100,000, with duration of 15 years, the cost of property insurance will be €509. For a higher mortgage of €320,000, meanwhile, the cost will be €1,856 as outlined below:

100,000 15-year mortgage

100 x 5.09 = 509 Euros

320,000 20-year mortgage

320 x 5.80 = 1,856 Euros

Life insurance is optional BUT, in some cases, the bank may require the customer to take out life insurance as a condition of the mortgage offer. The life insurance policy has a fixed cost and depends on the age of applicants. Normally the cost will range from between 2% to 6% of the amount of the mortgage. This is paid or deducted from the amount of mortgage or, in part, paid directly to the company or broker.

The substitute tax is a tax that the Italian Government takes on all mortgage loans. The amount is 0.25% if the property is your main residence (you have to take residency within 18 months of purchase). If the property is a second home, however, this tax rate is increased to 2%. Again, this tax is deducted from the loan amount before the funds are released to the client.

The disbursement of the loan contract is made by a notary in the presence of the buyer, the bank and the seller of the property which is the subject of the purchase. Notary costs for signing loan contracts ranges from €1,500 to €4,000. This cost will depend on the amount of the mortgage as well as the notary so it’s best to find out the likely cost beforehand.

If, for some reason, you are not able to be present on the day of signing with the notary, someone else can act on your behalf by way of a ‘power of attorney’.

The power of attorney will be shown all the details and specifics of the mortgage that you have chosen and that the bank has offered. The power of attorney will then sign for the mortgage loan that has been authorized.

Earlier I talked about the main property as the Government will offer discounts on this type of mortgage. It is very important, however, to

check with your real estate agent to ensure that the property you are about to purchase can be considered as your first house. The examples below serve to illustrate the differing costs between a first and second home purchase.

Example – Main House

15-year mortgage, Applicant age 40 years

  • Amount of loan 300,000
  • Bank Commission 1% 3,000
  • Property insurance 1,527
  • Life insurance * (optional) 6,200
  • Substitute Tax 1st house 750

Total costs 11,477
Net loan amount 288,523

Example – Second Home

15-year mortgage, Applicant age 40 years

  • Amount of loan 300,000
  • Bank Commission 1% 3,000
  • Property insurance 1,527
  • Life insurance * (optional) 6,200
  • Substitute Tax 2nd house 6,000

Total costs 16,727
Net loan amount 283 273

Costs to be paid directly:

Cost of survey 390
Notary 2,000

Six secrets to purchase a home in Italy for less

Aeolian islandsHow to acquire a property in Italy at a lower price? Below is a compilation of several basic tips (or secrets) that you can apply to get a bargain if possible when buying a home in Italy:

1. Actual property value

There was a considerable drop in property prices after the beginning of the economic crisis in 2007. It is important to be aware of this before buying property because current prices should be a negative deviation from previous ones but most sellers have not implemented this change. Hence buyers should check the actual property value in a specific area to be sure the asking price matches the news situation because it may happen that many sellers still tend to apply the rates as 8 years ago.

2. Location of property

Similar to most other countries, the value of property in Italy is greatly influenced by its location. Houses found in posh neighbourhoods, town centres and near certain sought-after natural features such as beaches tend to sell at higher prices than the rest.
But this is not always the case: Some houses are located in these strategic locations but still sell for much less than the ones that are not. This can be caused by busy traffic, high noise levels, poor security and a bad neighbourhood reputation.
At your own discretion you can opt for such a home and thereafter make necessary modifications to its structure to shut out the noise.

3. Property’s features

Some homes are more difficult to sell than others. A house on a top floor without lift access will be less desirable to buyers. So if you do not require a lift, you can take advantage of this to buy it at a discounted price. Additionally, an apartment on the ground floor is less luminous, more affected by surrounding noises and also considered to be less secure than the ones on the top floor. Thus its value will be less than the rest.

4. Condition of property

It is only logical that older buildings, especially those in need of extensive renovations and upgrades, retail for lower prices. Before buying a run down property, it is very important to employ the service of a professional to estimate the total costs that you may have to incur when renovating the property and then consider that amount when making your offer.
Nevertheless, it will be easier to obtain a major discount on these properties.

5. Be informed

Make an effort to acquire information about the property, its seller and his/her reasons for selling. A property owner in need to sell quickly is more susceptible hence easier to negotiate with. The same goes for a seller whose property has overstayed on the market.

6. Pay in cash

Since most sellers are usually in urgent need of the full amount, they prefer to deal with buyers that are willing and able to purchase their property in cash over those seeking a payment plan. They often may offer discounts for cash arrangements and thus it will be more economical for you.

With the above listed tips, you can save a substantial amount of money that you can channel towards upgrading and furnishing your home.

We wish you a smart and happy buying!

(source: gate-away.com)

Weak euro lure foreign buyers

castle italyTo live or spend one’s vacation in a castle or a manor house is a dream that can come true. That is, provided you have the time and money to invest not only in the purchase but especially in the maintenance, costly and often difficult, of that property.
It is a dream that attracts mostly foreign buyers, enticed to make acquisitions by the sharply declining prices in the last seven years of the crisis – a decline that has not yet stopped but has only slowed down – and in many cases by the favorable exchange rate. But for that type of structure, it is necessary to take into account the strong limits, when present, imposed on the restoration and the reconversion by the Fine Arts Department, which regulates the use of these buildings.

This niche market – there are fewer than 5,000 castles on Italian territory – has decidedly varied prices. And it is affected by trends. In general, the figures go from below €1,000,000, often for individual watch towers, up to various millions for historic structures, large and well kept.

Some examples of properties on the market? Romolini Immobiliare is selling the Antico Cassero in Tuscany, in the area of Arezzo. For €1.2 million one can become the owner of a castle dating from 1351. The property was extended and renovated over the centuries, and today is a prestigious home. A fortified castle of 2,000 square meters in Monferrato (Alessandria), completely frescoed inside, costs €2.9 million. The prices in general vary from €1,200 to €8,500 per square meter, says Lionard Luxury real estate, the agency that has 70 castles on sale in Italy in its portfolio.

The area most in demand is Tuscany, the cheapest is Piedmont. Of the properties for sale, there is the Sapia Castle (from the name of the Sienese noblewoman and protagonist of an episode of Dante’s Purgatory) near Monteriggioni (Siena) in need of a full renovation. Its price is €2.5 million.

“The clients are primarily foreigners, especially Russians, but in the last two years also Americans, enticed by the euro-dollar exchange rate and by the low prices,” says Dimitri Corti, the CEO of Lionard. In 90% of the cases, the castles are in need of renovation, with costs that go from €1,200-2,500 per square meter. For maintenance, with service personnel, one must think instead in terms of €100,000 on average per year.”

On the site www.luxuryestate.com, a partner of immobiliare.it, there is a castle on sale in Val di Pesa. Once a military watch tower, it had been transformed into a convent and was then purchased by Florentine nobility. It hosted well-known personalities in its 37 rooms, including, it is said, Leonardo da Vinci. Appealing stories for foreign buyers who love the history of Italy and its lifestyle.

(source: IlSole24Ore)