Regulation of Mortgage Loans: What you need to know

Mortgage loans are a significant financial commitment that binds the borrower for a long period. To protect consumers and ensure transparency in transactions, mortgage loans are subject to strict regulations in France. This article explores the main rules governing mortgage loans, the rights of borrowers, and the obligations of lenders.

Major laws regulating mortgage credit

Several laws regulate the subscription and management of mortgage loans in France. Here are the most important ones:

• The Consumer Code: This code forms the legal basis for protecting borrowers in the field of mortgage credit. It specifies the obligations of lenders regarding information and transparency, as well as the rights of borrowers in terms of withdrawal, early repayment, and termination of borrower insurance.
• The Scrivener Law: Adopted in 1978, this law requires credit institutions to provide clear and detailed information to borrowers before signing the contract. It also regulates the mandatory 10-day reflection period for any mortgage credit contract.
• The Lagarde Law: In effect since 2010, this law allows borrowers to choose their borrower insurance, provided that the guarantees offered are equivalent to those required by the lender. It aims to promote competition and offer better conditions to borrowers.
• The Hamon Law: This law, adopted in 2014, allows borrowers to cancel their borrower insurance within 12 months of signing the loan in order to choose a more advantageous insurance. It aims to strengthen consumer protection and encourage competition in the insurance market.
• The Lemoine Law: More recent, this 2022 law allows borrowers to change their borrower insurance at any time, without fees or penalties, after the first year of subscribing to the loan. It enhances transparency and offers more flexibility to borrowers.

Lenders' obligations

Credit institutions have several obligations towards borrowers, aimed at ensuring transparency and preventing the risks of over-indebtedness:

• Obligation to provide information: Lenders must provide borrowers with all the necessary information to understand the credit conditions, including the interest rate, total cost of credit, and repayment terms. This information obligation is crucial to enable borrowers to make an informed decision.
• Advisory obligation: Credit institutions are required to advise borrowers on the choice of credit and insurance, based on their financial situation and goals. This advice must be impartial and tailored to the borrower's needs.
• Verification obligation: Before granting a mortgage loan, the lender must verify the borrower's solvency by analyzing their income, expenses, and debt ratio. This verification aims to prevent over-indebtedness situations.
• Offer of loan obligation: Once the credit conditions are defined, the lender must provide the borrower with a written loan offer, valid for 30 days. This offer includes all the credit conditions and allows the borrower to accept or refuse them after a reflection period.

Borrowers' rights

As a borrower, you have several rights to protect you in the context of a mortgage loan:

• Right of withdrawal: After signing the loan offer, the borrower has a 10-day withdrawal period. This period allows them to reconsider their decision without having to justify themselves or pay penalties.
• Right to early repayment: The borrower can repay all or part of their credit in advance. Early repayment penalties are regulated by law and cannot exceed 3% of the remaining capital due or the equivalent of six months' interest.
• Right to change borrower insurance: Thanks to the Lagarde, Hamon, and Lemoine laws, the borrower can freely choose their borrower insurance, cancel it within 12 months of signing the loan, or change it at any time after the first year, without fees or penalties.
• Right to information: The borrower has the right to obtain all the necessary information about the credit before committing, including the total cost of credit, repayment terms, and the consequences of default.

Real-life examples

Let's say a borrower takes out a mortgage loan of €200,000 with a fixed interest rate of 1.5% over 20 years. Before signing the loan offer, the borrower has a 10-day reflection period to study the credit conditions and compare borrower insurance offers. If they find a more advantageous insurance, they can cancel the initial insurance within 12 months of signing the loan, or at any time after the first year, thanks to the Lemoine law.

Laws regulating mortgage credit regulation

The regulation of mortgage loans is governed by the Consumer Code, the Monetary and Financial Code, as well as the Scrivener, Lagarde, Hamon, and Lemoine laws. These texts specify the rights of borrowers, the obligations of lenders, and the conditions for subscribing, managing, and terminating mortgage loans.

Conclusion

The regulation of mortgage loans aims to protect borrowers and ensure transparency in loan conditions. Thanks to strict legislation and clearly defined rights, borrowers can subscribe to a mortgage loan with confidence. Before signing a loan offer, it is essential to understand the rights and obligations that come with it, and to consult an advisor if necessary to avoid unpleasant surprises.