Is it possible to rent out an apartment with a mortgage: legislative norms, banking conditions

Mortgage is a banking service that provides for the issuance of funds to improve housing conditions. For many citizens, a mortgage becomes the only opportunity to purchase their own home. Until the debt to the bank is paid, the apartment will act as collateral. Refunds are given up to 30 years. A lot can change over this long period. Perhaps the citizen will no longer want to live in the purchased housing, but will prefer to rent it out. Many borrowers have a question about whether it is possible to rent out an apartment that has been taken out on a mortgage.

Legislative norms

Registration of a mortgage is regulated at the legislative level. The regulatory framework, namely the Law “On Mortgage,” states that real estate within the framework of mortgage lending is the property of the borrower. Consequently, a citizen has every right to dispose of the object at his own discretion.

The borrower can:

• Live on the territory of the purchased property.
• Receive income from operations with the pledged property.

Important! Renting mortgaged real estate will not be considered a violation of current legislation.

The Civil Code states that the disposal of property should not infringe on the rights and interests of third parties. In this situation, the role of a third party is the financial organization that previously issued a loan for the purchase of the designated apartment.

There is no direct ban on renting out mortgaged real estate in the laws. In this case, it is necessary to coordinate your intention with the bank that holds the apartment as collateral.

The agreement may specify how the property is allowed to be used:

• The document may not indicate that the bank imposes any restrictions on the use of the property.
• The financial institution allows housing to be rented out, but a number of requirements must be met. As a rule, one of the main conditions is the writing of a written agreement.
• The mortgage agreement clearly states the prohibition of renting out the mortgaged apartment. Ignoring such a rule may lead to a conflict situation with the creditor.

In most cases, banks use the wording from the second paragraph. Renting is permitted with written permission from the bank.

Is it possible to refuse a mortgage after approval?

Sometimes the intention to take out a mortgage disappears even before the loan agreement is signed. And this is the simplest situation from which you can get out without problems. You can calmly tell the bank that you have changed your mind if:

• you applied for a mortgage online and received pre-approval;
• you bring your documents to the bank and receive final approval indicating the amount;
• you have collected a package of documents for the property being purchased, the bank has checked it and agreed to accept it as collateral;
• the contract was signed, but the transaction was not registered in Rosreestr, ownership rights were not formalized, the seller did not receive the money.

That is, at any stage of registration, you can tell the bank that you have changed your mind about concluding a loan agreement. Even if the agreement is signed, you can write to the bank an application to refuse it and simply not register the transaction.

The loan transaction is finalized at the moment of transfer of money. If the money is not transferred, the loan agreement has no legal force.

Purpose of renting a mortgaged apartment

First of all, renting out real estate is an additional source of income. Some citizens purposefully take out an apartment on a mortgage for its further rental. This method makes it possible to own property without investing your own funds. Sometimes the cost of rent completely covers the monthly payment.

Here's who benefits from renting mortgaged real estate:

• Persons who purchased an apartment to make a profit or conduct business in it.
• Citizens who have invested money in real estate. For example, we bought an apartment for children who have not yet grown up.

Let's calculate the benefit

The cost of housing in different regions is not the same. Let's take for example an average Moscow one-room apartment worth 5 million rubles. In the following, all numbers will also be averages.

Option 1. The interest rate on our loan is 13% per annum. We take a loan amount of 4 million, with a minimum down payment of 20% (1 million rubles). The amount of the monthly payment will be 45 thousand 113 rubles. We will rent out the apartment for 30 thousand rubles. per month.

Recommended article: Overpriced mortgage: risks for seller and buyer

Option 2. Take out a loan without a down payment. We will calculate the same percentage, although this is unlikely.

Option 3. The down payment will be 60% - 3 million rubles.

Now let’s compare the amounts obtained through simple calculations in rubles. At the same time, utility bills and expenses for periodic repairs in the apartment were not included in the settlement amounts.

With the first two options for a rental mortgage, the apartment owner remains at a loss. And in the third case, renting out a mortgaged apartment not only pays off, but also brings net profit.

What to do if the bank refuses to rent out a mortgaged apartment

Some banks allow the rental of an apartment with a mortgage; this is even stated in the agreement. In this situation, the borrower should not have any difficulties.

However, sometimes the contract contains a ban on surrender. You should not neglect the creditor’s requirements so as not to create a conflict situation. It is better to use one of the suggested methods:

• It is recommended to file a petition to change the terms of the contract. The main motive should be the fact that without renting out real estate you will not be able to fulfill your debt obligations in a timely manner. Most lenders are cooperative and allow the apartment to be rented out; this helps them minimize their own risks.
• Renting out an apartment without drawing up a lease agreement. This is an illegal activity. In addition, the borrower undertakes a number of obligations to restore the property if damage occurs during the delivery period.

Is it possible to take it unofficially?

Many people have a question: is it possible to rent out a mortgaged apartment unofficially? After all, bank representatives will not go to all the apartments and check whether the owners live there. This is generally illegal - except for the authorities, no one can oblige residents to show documents for the apartment.

Therefore, quite a lot of people rent out their apartments purchased with a mortgage unofficially. Many residents do not even know that they live in a mortgaged building.

What will happen if such a setup is revealed:

• the lease agreement will be terminated, and the tenants illegally occupying the premises will be evicted, and the owner will have to return their money;
• the owner will be forced to calculate illegally obtained income, declare it and pay tax + fine;
• the bank may demand early repayment of the mortgage due to violations of the terms of the contract.

And here’s another interesting article: How to get realtors to work

Thus, it is better not to run into trouble, but to ask the bank to allow you to officially rent out the apartment. Yes, you may have to incur additional expenses in the form of registering an individual entrepreneur and obtaining a commercial mortgage (the rate for it is slightly higher than for a regular one), but if you are going to make renting out an apartment your business, it is better to do everything according to the law.

What difficulties may arise when renting out an apartment without the consent of the lender?

If the borrower nevertheless decides to ignore the lender’s requirements and rent out the apartment on illegal grounds, you should think about the consequences of such actions. If the bank discovers such a fact, the violator faces punishment:

• Imposition of large fines.
• Immediate cancellation of the mortgage agreement, after which the property becomes the property of the bank.

The likelihood of such risks occurring is not very high. The owner and the borrower are one person, so he can freely dispose of his own property.

It should be noted that the rental of an apartment must be registered as an individual entrepreneurship. When government agencies do not have such information, it is quite problematic to prove the fact of delivery.

A citizen who rents real estate bears minimal risks. The most unpleasant thing that can happen to him if a dispute arises between the bank and the borrower is eviction from the occupied living space. However, such force majeure can happen to any apartment that is rented.

Important! The guarantor for the tenant can be an agreement. After signing it, the person is given 30 days to vacate the apartment and find a new place of residence.

What does Sberbank say about the refusal of a mortgage after registration?

Every second mortgage in the country is issued by Sberbank, so let’s look at what it says about refusing a mortgage loan after it has been issued. In general, other banks operate similarly; Sber’s scheme can be called a standard.

As mentioned above, refusal to apply for a mortgage can be announced at any stage of the process. But if it has already come to an end, contracts have been concluded, registration has been completed, the actions will not be so simple.

How to refuse a Sberbank mortgage:

1. Refuse to go further at any time without any statements if the agreement has not yet been signed.
2. If the agreement is signed, but the deal is not concluded in Rosreestr. The client writes a mortgage waiver application to the bank office. If the documents have already been submitted for registration, you need to promptly contact Rosreestr and stop the process.
3. If the transaction has been registered, but the bank has not yet transferred the money to the seller. Contact the bank and write an application, terminate the purchase and sale agreement with the buyer, register the termination with Rosreestr and provide Sberbank with a document confirming this.

These are ideal solutions to the situation. The case is resolved without trial, fines, or additional fees. It's just important to make a decision in a timely manner. If the seller has already received the money, then that’s it, there will be no easy way out of the situation.

If the seller receives money through the cell

There are still ways out in a situation where the seller receives money not by bank transfer to an account, but through a safe deposit box. If he has not yet collected them, the fact of transfer has not been recorded, so something can still be done.

But here you need to understand that your intentions to refuse the transaction must be shared by the seller. And he is not at all interested in this. And he has every right to take the money from the cell, after which the transaction will be finally completed.

If you managed to come to an agreement with the seller, then you need to quickly formalize the termination of the purchase and sale agreement, register it and submit an application to the bank to change the entry in the Unified State Register (the apartment is already encumbered).

The bank then withdraws the money from the safe deposit box and uses it to close the loan early. But since the loan was valid for some time, during this period the bank will take the required interest, and you will have to pay a little extra. But this is in the interests of the borrower.

Is it possible to simply close the mortgage early?

The first thing that comes to mind is exactly this option - simply close the mortgage loan early, and that’s it, the obligations will be fulfilled. Early repayment of loans, according to the law, takes place without fines, commissions or obstacles on the part of the bank.

Only in the case of a mortgage there is one big “but” - where to get the money for this early repayment? In the case of a conventional cash loan, funds are issued in person and may simply not be spent by the borrower. Then he will simply make an early repayment with them and close the loan.

If it is a mortgage, then there is no money in hand; it has been transferred to the seller. There is only a purchased apartment that you want to return to the bank. Of course, if the buyer has available funds, early repayment is simply an ideal option. But usually the situation is completely opposite: there is no money, there is a desire to give up the mortgage and apartment.

In this case, early repayment is possible only with money received from the sale of the mortgaged apartment. You will have to negotiate this with the bank.

Is it possible to refuse a mortgage after the transaction?

Now let's consider another situation. When the transaction is finally completed, the contract is signed, registered in Rosreestr, a bank encumbrance is placed on the property, and the buyer receives the money. This situation can no longer be reversed; it is impossible to terminate the contract and the deal.

Why:

1. The seller has already received the money, which means that, according to the law, the loan transaction is considered fully completed and the loan agreement has entered into legal force.
2. An encumbrance has been officially registered on the property and a mortgage has been drawn up. This data is reflected in the extract from the Unified State Register.
3. A purchase and sale agreement has been concluded, the seller has received money, and the transaction for this part is also completed.

That is, terminating the mortgage agreement is technically impossible. A mortgage can only be waived by fully paying off the debt to the bank.

What if you just stop paying?

If the bank does not want to meet halfway, or the borrower himself does not ask for help, the obligations do not disappear anywhere. There is a loan agreement that must be respected. And if the desire to abandon the mortgage is caused by a drop in the level of solvency, a delay occurs.

What will happen in this case:

1. After the delay, the bank will start calling the debtor to clarify the situation. In principle, already at this stage you can indicate your position and say that you want to refuse the mortgage, that you do not intend to pay.
2. The bank can fight with the borrower for several years, and every day penalties will be added to the overdue payment. And since the loan is not paid, the amount of overdue will increase every month.
3. The bank cannot stand it and will sue to take the apartment. The court will take his side, and eviction will be organized.
4. The apartment is sold at auction for pennies, the debt is repaid ahead of schedule. If there is not enough money, the bank can sue and demand the missing funds.

Yes, this is also an option to refuse a mortgage, but it is very specific and problematic. It’s better not to bring it up to him and try to establish a dialogue with the creditor.

Comments: 2

Your comment (question) If you have questions about this article, you can tell us. Our team consists of only experienced experts and specialists with specialized education. We will try to help you in this topic:

Author of the article Irina Rusanova

Consultant, author Popovich Anna

Financial author Olga Pikhotskaya

1. Michael
   09/04/2021 at 12:15 Hello! I took out a mortgage from Sberbank 2 years ago. Half a year later he fell ill with a serious illness. I still worked for a while, but now I decided to go on disability. The process is lengthy, and the money from sick leave is not enough to pay the mortgage and live on. If there is a 2nd group disability, then I take the apartment through insurance. But by the time they give me disability, the bank will already take this apartment through the court for debts. Question: what should I do in this situation?
   Reply ↓ Anna Popovich
   09/04/2021 at 20:15

   Dear Mikhail, submit an application for mortgage restructuring at SberBank Online or at the bank’s office. The bank will analyze your situation and make a decision. The period for consideration of applications for restructuring is up to 10 working days.

   Reply ↓

If we are talking about refusal after divorce

Now let's look at the situation: is it possible to refuse a mortgage during a divorce? If the loan is taken out during marriage, both spouses become co-borrowers and bear identical responsibility. If a divorce occurs, disputes and questions always arise.

How couples work:

1. They continue to pay the mortgage according to a verbal agreement. After the loan is repaid, the issue of division is resolved.
2. They contact the bank to cancel their mortgage completely. The apartment is for sale, the loan is closed ahead of schedule.
3. One of the borrowers leaves the mortgage. As a result, the borrower will be one person who will be responsible for the repayment.

There is no single algorithm for action in this situation; it all depends on the circumstances and intentions of the former spouses. Sometimes a matter has to be decided in court.

It happens that it is not possible to come to an agreement with the bank. He refuses to sell the apartment (the law does not oblige him to fulfill the borrower’s requests). Then all that remains is to go to court and prove your point of view, for example, with certificates of income, disability, if the reason is a decrease in income.

FAQ

I was approved for a mortgage, but I changed my mind about taking it. Is it possible to refuse?

Yes, there won't be any problems. If the contract is not concluded, the transaction is not registered, the money is not transferred to the seller, you have no obligations.

Can a bank refuse to remove a co-borrower from the mortgage during a divorce?

Maybe. For a bank, two borrowers are better than one. If one stops paying, there is always a second one. Plus, it is easier to collect money in case of delay from two than from one. But the conclusion cannot be ruled out. It is important that the new primary borrower be solvent and have a good credit history.

Is it possible to refuse a mortgage after signing a loan agreement?

It is possible, but only if the seller has not yet received the money: it has not been transferred to the account, he has not taken it from the cell.

What to do if the transaction has already been registered with Rosreestr?

You can terminate the purchase and sale agreement with the seller and write to the bank an application to change the data in the Unified State Register (USR) (remove the imposed encumbrance). But this is only possible with the consent of the seller and if he has not yet received money from the bank.

The bank did not accept the mortgage waiver application, what should I do?

The only option is to go to court and try to initiate termination of the contract in court.

Sources:

1. Domklik: How to terminate a mortgage deal.

about the author

Irina Rusanova - higher education at the International East European University in the direction of "Banking". Graduated with honors from the Russian Economic Institute named after G.V. Plekhanov with a major in Finance and Credit. Ten years of experience in leading Russian banks: Alfa-Bank, Renaissance Credit, Home Credit Bank, Delta Credit, ATB, Svyaznoy (closed). He is an analyst and expert of the Brobank service on banking and financial stability. [email protected]

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