What rights does the Code of Good Practices provide?
If you are going through economic difficulties and you can’t afford to pay your mortgage loan, you may be interested in knowing that, if you request your bank to apply the Code of Good Practices, you will be entitled to the following rights:
- You can’t be charged a late payment interest higher than ordinary interest rate plus a 2% on the outstanding capital, even though a higher late payment interest has been established on the deed.
- Receive a written reply from your bank with a debt restructuring plan, by a maximum of one month. Such plan must offer certain modifications to your mortgage loan conditions that should help you with paying the instalments
However, your bank may reject your application if you are either not within the exclusion threshold or if you can’t provide evidence of such condition. Your application could also be rejected if the property is in foreclosure procedures and its auction has already been advertised.
- The modifications your bank must apply to your mortgage should at least be: a five year interest-only period, an interest rate of euribor plus 0.25 during the interest-only period and a term extension up to 40 years.
Even with these modifications, the monthly instalment may possibly continue to be higher than the 50% of the total income of all family members. In this case, the debt restructuring plan would be considered unfeasible, therefore not being able to benefit from it.
- The bank could also reduce the debt amount (release from the debt), but this would be a voluntary option on its behalf.
- If the debt restructuring plan is unfeasible, and the credit institution decides not to grant you with a release from the debt, you then have the right to request a dation in payment, where the bank totally cancels the debt while keeping the mortgaged property. If you request this option, you will have the right to rent your home from the bank for two years and for an annual rent of up to 3% of the outstanding debt.