Every year the credit system of Ukraine is developing rapidly, banks offer an ever wider range of their services. Considering all this, people do not resort to the details of each service, however, when faced with them, they often cannot understand the difference between seemingly identical services. An example is services such as loans and mortgages.
It’s no secret that buying an apartment has always been and will be in demand. However, the way of buying an apartment is different: with your own funds, on credit or a mortgage. Without their own capital, people turn to banks with the desire to purchase an apartment for borrowed funds. The question arises, what should you choose – a loan or a mortgage? What is the difference between them?
8 main differences between mortgages and loans
- An important difference between a mortgage and a loan is the mandatory pledge of real estate that you want to purchase. It is impossible to sign a mortgage agreement without the appearance of rights to real estate from the lender until the funds are paid in full. When receiving a regular loan, there is no need to pledge the property;
- The second difference is the amount the borrower can hope for. Today the amount of a mortgage loan can be ten times more than the amount of a cash loan;
- The third feature is the maturity dates. In a loan, the debt repayment period does not exceed 5-6 years, while mortgage lending can reach 20-35 years;
- The fourth difference is interest rates. Considering that with a mortgage the bank’s risks are minimal – the interest rate compared to a loan is much lower;
- The fifth difference is the purpose of the borrower. Taking a mortgage, the borrower wants to improve his own living conditions and buy a home, the loan can be used not only to buy a home, but also for other needs;
- It is possible to issue a mortgage by paying an initial payment of 10-15%, depending on the conditions provided, while a loan will be provided only if there is 65-75% of the cost of housing;
- Buying an apartment on credit – you have every right to dispose of it at your own will, which cannot be provided by a mortgage until the debt is paid in full;
- Consideration of an application for a mortgage – from a week to a month, while they promise to consider a loan from 1.5 hours to 5-6 days.
Why choose a mortgage?
- Mortgage is a banking “product” designed specifically for people who decide to buy a home.
- Having received a mortgage loan from a bank, a person can immediately move into a new home.
- The amount of the mortgage loan can be much higher than the consumer loan.
Although interest rates on mortgages are growing, they still remain lower than on other loan programs. Mortgages are provided for a longer period than consumer loans, therefore, monthly payments for a property owner are not so onerous.
The fact that it is impossible to buy an apartment on a mortgage loan without the approval of the bank also has positive aspects. The credit institution, together with the insurance company, undertakes the inspection of the facility, preparation and execution of the transaction. They also ensure the security of mutual settlements. As a result, the risks for the home buyer that are possible during the conclusion of the transaction are minimized. The same cannot be said about apartment buyers who received a consumer loan from a bank. They are responsible for the “cleanliness” of the object and the transaction.
Why choose a loan?
The mortgage is beneficial for people who do not have accumulated funds for the purchase of housing or when these funds are calculated at 10-20% of the cost of an apartment. A person who already has a significant amount should think about obtaining a consumer loan, but those 10-20% are not enough for a planned purchase. The borrower does not have to document the purpose of the loan. In addition, a person who has taken out a consumer loan will be able to avoid significant losses incurred by a mortgage (annual contributions for life insurance, disability insurance, as well as for a property that is partly owned by the bank before the mortgage loan is repaid).
Thus, the answer to the question “loan or mortgage?” – purely individual. It all depends on whether the borrower has significant funds to buy a home or not; whether a person is ready to share property with a bank or prefers to be the sole owner of real estate; is he confident in the future and is he ready to plan his life for 10-30 years in advance.
It is only for you to choose; it all depends on your financial capabilities, monthly income, housing and bank. Each loan option has advantages and will be beneficial if you take into account all your possibilities. Before making a final decision on choosing a particular type of loan, it is worth consulting with specialists.