Mortgage credit — what to know before taking a home loan

Unlike ordinary consumer credit, a residential mortgage is governed by its own statute, transposing the European Mortgage Credit Directive — with additional requirements on creditworthiness assessment and transparency, reflecting the long term and the large sums involved.

The creditworthiness assessment

The lender must carry out a thorough assessment of the borrower’s creditworthiness before granting a mortgage, taking into account income, existing debts and the ability to service the loan under realistic scenarios — including a possible future rise in rates on a variable-rate loan.

Standardised pre-contractual information (ESIS)

Before the contract is signed, the lender provides a standardised European Standardised Information Sheet, which allows offers from different banks to be compared directly in the same format — total cost, APR, repayment schedule, terms on default. Use it to compare like with like.

The right to repay early

• The consumer may repay the mortgage early at any time, in whole or in part.
• The bank may charge compensation for early repayment only within the statutory limits, normally linked to the remaining term.

Loans in a foreign currency

On loans taken in a currency other than the euro, the consumer has the right either to convert the loan into the local currency on certain conditions, or to measures limiting the currency risk — protection that gained particular significance after the historical cases of Swiss franc loans. With the adoption of the euro, this risk disappears for the vast majority of Bulgarian home loans, which are now in euro.

Conclusion

A mortgage is the longest financial commitment most people ever make — the legal protection is substantial, but it requires the borrower to actively ask for and understand the information provided, rather than simply signing the bank’s standard papers.

What to check before you sign

• The full APR and the total repayable over the whole term — not just the monthly instalment.
• The type of rate (fixed or variable) and, if variable, the reference index.
• The early repayment charges and when they fall due.
• All the accompanying obligations — insurance, valuation and servicing fees.

Frequently asked questions