What is a mortgage loan

Usually, when they say “housing loan” and “mortgage”, they mean the same thing. And sometimes these concepts are generally combined into one – “mortgage loan”. In most cases, they are truly synonymous.

Mortgage loan

Mortgage loan

This is especially observed in everyday practice among the numerous operations of banks with customers. Both bank employees and borrowers in conversation and sometimes even in written documents alternate these concepts, implying the same things. However, if you follow a strict banking classification, the difference between these definitions is still there. But before considering the difference between a mortgage and a housing loan, it is worthwhile to identify the common points of these loans, since they have much more in common:

  • The act of obtaining bank money in debt is strictly targeted, that is, one way or another, but the loan must be spent on real estate. Purpose is the main feature that distinguishes mortgages and housing loans from consumer loans;
  • the amount of money issued to banking clients for residential space, even at the average value, is significantly larger than the amount of consumer loans and car loans. By the amount of cash borrowed, only lending to small and medium-sized businesses can compete with mortgage and housing loans;
  • big terms are directly related to the size of the amounts issued. A large loan for a couple of years the average borrower does not pay. The standard crediting period related to real estate is 12-15 years, which significantly exceeds the scope of consumer loans.
  • the overall assessment of the client’s solvency is also much stricter, which again is associated with larger money. The minimum initial payment, with the exception of special programs and conditions, is always mandatory. A guarantee is also characteristic of both types of loans, and the requirements for guarantors are the same (constant official income equal to the income of the borrower and the absence of bank debts);
  • in practice, the age limits of mortgages and housing loans are already narrower than those of consumer loans. If an 18-year-old client can easily get money to buy an apartment, people usually come to buy an apartment at least between the ages of 25-27, when many people have a higher education diploma, get a regular job and a stable income. The situation is similar with the upper age bracket – a pensioner is also able to take a consumer loan, but in the real estate sector, banks are beginning to be cautious with those over 45;

The main differences mortgage and housing loan

The main differences mortgage and housing loan

 

 

As can be seen, there are much more common points in the described credit systems. And the similarity is noted in the key points. The difference is in the details. Nevertheless, these little things for some borrowers play a key role in choosing which particular banking program to use. So, how does a loan differ from a mortgage? You can mark the following:

1. Differences within target. It can be said that housing loans and mortgages are divided into two branches according to their intended use. Mortgage is designed strictly for the purchase of any property. This can be both residential and non-residential (industrial) real estate. Residential real estate includes classic apartments in high-rise buildings, private houses, cottages, townhouses, country cottages. Non-residential real estate is represented by office, warehouse, commercial and industrial areas. Separately go the land, which can also be purchased for mortgage funds. That is, a mortgage is the receipt of money in debt from a banking institution, which must go exclusively to acquire ready-made immovable objects of any profile. But the purpose of a housing loan is somewhat different. If we are talking about the purchase of finished real estate, then this property is 90% of all cases secondary. On the mortgage, you can also buy housing in the secondary market, but this is not considered as a priority. If a client from the very beginning plans to buy, for example, an already lived-in apartment, then it is better to first consider proposals for a housing loan. Further, this type of loan can be spent on building your own property. A housing loan is even more profitable in this regard, since it is “more flexible”. Also, the money in this program is spent on the restoration of real estate. For example, some living space was bought on the cheap, requiring serious repairs or even in disrepair. Housing loan will ensure the restoration of the object.

2. Ownership. This is an important legal distinction, clearly indicating how a mortgage differs from a housing loan. The fact is that in a mortgage a purchased apartment / house / other area is immediately issued as a mortgaged property of the bank. And until the very end of the repayment of the mortgage debt the credit institution is considered the owner of the real estate. The borrower becomes a full owner only after he has fully settled with the lender. The peculiarity of the housing loan is that here the borrower immediately receives full property rights. For the client, this is an absolute plus. After all, even if it is impossible to continue to comply with credit obligations, the client will be able to independently sell real estate at its price. So, there is a chance that after the debt is repaid, the former debtor still has some money in his hands. But with a mortgage can be two options, and not one of them does not go in favor of the borrower. In the first embodiment, the bank, as the owner, is engaged in the sale of mortgage property. But this means that the property will go under the hammer at the very minimum market price, since the bank does not need such a ballast – it is only interested in financial assets. Institution tends to get your money back as soon as possible. In the second variant, the creditor entrusts the sale of the collateral to the debtor, which, by the way, is even more likely. But it sets strict deadlines for implementation, so we have to agree literally to the first sentences. In addition, the bank can monitor price fluctuations for a particular real estate. If the pledge has risen in price sharply, the bank, as a full owner, can demand a part of the profit in its favor beyond what it gave to the borrower. It all depends on the policies of a particular institution.

3. Hence the third feature regarding the pledge. In the mortgage bail is always the case. At a minimum, it is the property itself purchased for money issued on credit. But from the client may be requested and additional security, such as cars. And when you receive a housing loan, the living space is not pledged. The lender may offer the client to pledge some other property of his. Moreover, the option is possible without any collateral. However, the conditions of such a loan will be very tough – banks are insured against costs.

4. You can also indicate the difference in terms of the package of documents. Mortgage implies at least one compulsory insurance (against physical damage to housing), but in fact, to approve the application, the borrower has to shell out for a few (life and health insurance, title insurance). Credit for the living space allows no insurance as such.

5. Finally, mortgage and housing loans are different payment terms. Here it is reasonable to give a small comparative table showing the difference between these two types of loans.

Mortgage

Housing loan

Down payment: average size – 25%, sometimes absent

Down payment is always required and its standard size is 40%.

Annual interest on average – 15%

Annual interest on average – 19%

Standard crediting period – 15 years

Standard crediting period – 8 years

Monthly installments less

The amount of monthly contributions more

When to take a mortgage, and when – a loan?

When to take a mortgage, and when - a loan?

 

 

What are the disadvantages of a mortgage compared to its credit counterpart? First, the overpayment of annual interest for the entire mortgage period will be more. This is due not to a higher interest rate (it’s just lower compared to a housing loan), but to a longer crediting period. Secondly, the degree of freedom of the borrower for the crediting period is lower here. With the mortgage real estate the first two years nothing can be done in any case. Then you have to ask permission from the bank if the client wants to sell this property. And the lender will give a positive answer, probably, only if half of the entire mortgage has already been paid off as a minimum. And, thirdly, there is no mortgage without collateral. However, many customers still prefer to take a mortgage, rather than a loan for housing. And this is due to the advantages that the mortgage loan has.

Actually, according to the above table it is easy to understand. For most borrowers, the determining factor is either a relatively small down payment (or even the possibility of avoiding it), or a smaller amount of money that must be paid monthly. Here everyone decides for himself. Differences mortgage loan for living space and determine the clientele. You need to analyze your financial capabilities and compare them with requests. As practice has shown, for borrowers who are seriously limited in funds, it is always more suitable mortgage. But those who have the money for a large down payment should think about a housing loan.

Summarizing, we can say that for a client the difference between a classic mortgage and a housing loan is that it is easier to pay a mortgage on a monthly basis, but for the whole period the overpayment will be more. But with a loan, the opposite is true – in a month the financial burden is higher, but for the entire period the interest payments will be less. In the presented article, through a comparison, an answer is given to the question of what is a mortgage and what is a housing loan. As you can see, these things are somewhat different in details, which may be important for many potential borrowers.

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