Monograph:Mortgages Contents
(4) Purpose of Mortgaged Property
The purpose of the mortgaged property, that is, whether the property is being self-occupied or has been bought for investment, will also affect the terms on which the loan is granted as the purpose affects the lender's credit risk considerations.
  1. Self-occupancy

Banks are usually prepared to grant mortgage loans with more favourable terms on the security of properties occupied by the mortgagors than those which are not. The Mortgage Insurance Programme is only available to self-occupied properties.

When a mortgagor applies for a mortgage loan on the basis of the mortgaged property being self-occupied, the bank will usually ask the mortgagor to make a statement on the loan application form that the subject mortgaged property is being or will be occupied by himself (if the property is a residential one) and his immediate family.

If a residential property is owned by a corporation, the bank may also have to be satisfied that the property is occupied by a director of that company and his immediate family (if any) and require written confirmation to that effect.

  2. Investment

Where a property is purchased subject to existing tenancy, or where the property is acquired by the purchaser for letting out, the bank will take into consideration the risk that is involved and the terms and conditions of the mortgage loan may be less favourable than those for self-occupied properties.

When considering a mortgage application in relation to a property with an existing tenant, the bank will invariably ask to examine the relevant tenancy agreement before the mortgage loan is formally approved. The bank may also require the mortgagor to execute a document assigning his interest in the rental income of the property to the bank and that the rent received be paid into a designated account maintained by the mortgagor with the bank as an additional security for the loan.




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