What is a Housing Pledge? All About Mortgage Deeds and Housing Bonds
For robotsWhat is a Housing Pledge?
A housing pledge is a legal security that a borrower provides to a lender to guarantee the repayment of a loan, typically a mortgage. This security is directly linked to the property or housing cooperative apartment being mortgaged. The purpose of a housing pledge is to provide the lender with assurance; if the borrower cannot meet their payment obligations, the lender has the right to sell the property to recover the lent funds. In Sweden, the housing pledge is a fundamental part of real estate financing, and there are two main forms of deeds used to prove and formalize this security: mortgage deeds for houses and housing bonds for housing cooperative apartments.
To fully understand the housing pledge, it's important to distinguish between how it functions for owning a house (real property) versus owning a housing cooperative apartment (bostadsrätt). Although both aim to provide loan security, the legal instruments differ.
Mortgage Deeds for Houses (Real Property)
When you own a house or another type of real property, such as a farm, the security for the loan is a mortgage deed (pantbrev) on the property. A mortgage deed is a written proof that a certain amount has been pledged against the property. When you take out a mortgage for a house, the bank will require you to establish mortgage deeds as security for the loan. These deeds are registered with the Swedish Land Registry (Lantmäteriet).
If you buy a house and take out a loan, the bank will ensure that there are sufficient mortgage deeds to cover the loan amount. If there are not enough existing deeds, or if you wish to increase your loan, you may need to apply for new ones. The cost of issuing new mortgage deeds is based on a stamp duty, which is a percentage of the deed's value. This is a one-time fee paid to the state.
It's important to understand that mortgage deeds follow the property, not the owner. If you sell the house and the new owners take over your loans, the mortgage deeds will be transferred to them and used as security for their loans. However, if you fully repay your loans, you can choose to cancel the deeds, but they can also be retained as potential future security.
Housing Bonds for Housing Cooperative Apartments
For housing cooperative apartments (bostadsrätter), which are most commonly apartments in multi-unit buildings, the process is different. A housing cooperative apartment is not real property but a right of use to an apartment held by a housing cooperative association. Therefore, you cannot obtain a mortgage deed on an individual housing cooperative apartment in the same way as on a house.
Instead, a form of pledge known as a housing bond (bostadsobligation) is used. When you take out a mortgage for a housing cooperative apartment, you pledge your apartment to the bank. The bank then receives security in the association's assets, but more specifically in your share of the association. The housing bond is a debt instrument that proves the apartment is pledged. This type of pledge is not as tangible as a mortgage deed on real property, but it still provides the bank with security.
The housing cooperative association itself has a mortgage on its properties, and when you buy an apartment and take out a loan, your share in the association serves as collateral for the bank. The housing bond is thus a way for the bank to secure a claim on the economic association as a whole, of which your apartment is a part. If you cannot repay your loan, the bank can force the sale of your housing cooperative apartment to recover its funds.
The Difference Between Mortgage Deeds for Houses and Housing Bonds
The main difference lies in what is pledged. For a house (real property), the property itself serves as security, and the mortgage deed is proof of this. For a housing cooperative apartment, your share in the housing cooperative association is the security, and the housing bond is a debt instrument confirming this. This means that mortgage deeds for houses are more direct and linked to a physical asset, while housing bonds are more indirect and linked to an economic share in an association.
Another important distinction is how the pledge is registered and managed. Mortgage deeds for properties are registered with the Swedish Land Registry (Lantmäteriet), a public authority. Housing bonds are handled more internally by the housing cooperative association and the bank, although rules and procedures must be followed.
How Does a Housing Pledge Work During a Sale?
When you sell a property or a housing cooperative apartment with an associated housing pledge, the pledge must be handled. If you took out a mortgage to finance the purchase, the buyer will either take over your loan (and thus the pledge) or you must repay the loan before the sale can be completed. If you repay the loan, the pledge will be deregistered or transferred to a new owner.
When selling a house with mortgage deeds, the bank ensures that the deeds are either redeemed or transferred to the new owner. If you have multiple deeds outstanding and your loan only covers a portion of them, the remaining deeds can either be kept by you for future use or cancelled. When selling a housing cooperative apartment with a housing bond, a similar process occurs where the bank ensures the loan is repaid or that the new owner takes it over.
Frequently Asked Questions About Housing Pledges
What is a mortgage deed (pantbrev)?
A mortgage deed is a legal document that proves a certain amount of money has been pledged against a property as security for a loan. It serves as proof of the pledge right.
Can you have mortgage deeds on a housing cooperative apartment?
No, you cannot have mortgage deeds on a housing cooperative apartment in the same sense as on a house. For housing cooperative apartments, housing bonds (bostadsobligationer) are used as loan security instead.
What is the cost of obtaining a mortgage deed?
The cost of obtaining a new mortgage deed is a stamp duty based on a percentage of the deed's value. The fee is paid to the state.
What happens to the mortgage deed if I repay my mortgage?
If you fully repay your mortgage, you can choose to either cancel the mortgage deeds or keep them for future use. They are then no longer linked to a specific loan.
Who owns the mortgage deed?
The mortgage deed is owned by the lender (usually the bank) as security for the loan. Although it is issued in the property owner's name, the lender holds the pledge right to it.