Homogeneous Mortgage: Mandatory Pre-IPO Warnings

Homogeneous Mortgage: Mandatory Pre-IPO Warnings

If it has advantages, a soft loan or a bridging loan can be dangerous. Both the credit broker and the lender must warn the borrower of the risks incurred.

The Court of Cassation indicated that a borrower who receives a soft loan or a loan in stages is entitled to receive special warnings, because if such a loan gives him cash flow advantages, it can be dangerous (Cass. Civ 1, 25.5.2022, U 21 -10.635). The borrower has the right to get a mandatory warning from the credit intermediary and get information from the lender, the court has just ruled, otherwise these two professionals have their responsibility to this customer.

This system is especially intended for borrowers who want to maintain cash flow or for borrowers who are already indebted, as it initially reduces monthly repayments. The actual repayment is deferred to a later period, during which the borrowers expect better financial capabilities, for example because they will finish repaying an earlier loan in progress.

committed responsibility

So a couple in this case took out a mortgage to be paid in twenty years to purchase their principal residence. But it was agreed to reduce the repayment terms during a first level of about 4 years before increasing them after that. At the end of these four years, the principal to be repaid has increased because the maturities paid do not cover all the interest alone. The remaining interest has been capitalized i.e. it is added to the principal to generate new interest over time.

The couple, who repaid a total of about 25,000 euros in installments, faced a capital to be repaid which had increased by 5% from the start. These clients argued that this negative amortization, in which the maturities are less than the interest to be paid, is a dangerous product because it can increase debt, and the responsibility of the lender and the credit intermediary for not releasing it. Warning when subscribing. In the case of individuals, who are inexperienced with regard to credit, the judges held that they were right and the professionals held their responsibility by not stressing the risks.

Leave a Comment

Your email address will not be published. Required fields are marked *