A mortgage loan can be a great solution for people who are looking for more cash, such as for investment purposes. With real estate as collateral, the bank can offer really favorable loan terms. What is a mortgage loan? What to pay attention to when taking out this type of loan?
What is a mortgage loan?
mortgage loan, although it is often confused with a mortgage loan, is an ordinary cash loan with collateral in the form of real estate to which we have rights. In order to be able to talk about a mortgage loan, that is, one whose collateral for the bank will be just a real estate, you need to own your own apartment, house, plot of land or other property. Thanks to the collateral, the bank can offer better loan terms, for example, in the form of a lower margin and lower or zero commission. We will list the advantages of a mortgage loan in the following section.
Mortgage loan vs. mortgage loan
As we mentioned above, a mortgage loan is often confused with a mortgage. In fact, it’s not even a “mortgage loan,” but rather a home loan secured by a mortgage. This is what “mortgage loans” really are. A loan granted for the purchase of an apartment or house with simultaneous security on the property financed by the bank.
Money from a home loan can only be used for a specific purpose, as is usually the purchase of an apartment or house. In the case of a mortgage loan, the situation is quite different.
What can a mortgage loan be used for?
mortgage loan can be used, unlike a home loan, for any purpose. As we mentioned in the introduction, a mortgage loan is an ordinary cash (consumer) loan, with the difference that it is secured by the real estate we own. If we stop paying installments on the loan/mortgage loan, the bank can easily foreclose on the property, and then sell it and recover its funds.
Thus, the money from the mortgage loan can be used for any purpose chosen by the borrower. The bank is not interested in whether we buy another property, a car, shares in companies or spend it on a vacation. The important thing is that the mortgage loan installments are paid on time.
What can be the collateral for a mortgage loan?
Amortgage loan can be obtained against the collateral of virtually any real estate, but banks are most likely to provide financing with collateral on an apartment, house or building plot. However, there is no obstacle to getting a mortgage loan also on the pledge of commercial premises, service premises or other real estate on which security can be established in the form of a mortgage.
However, the type of property, its location, condition, purpose usually determines the amount of the mortgage loan, so it is of great importance for those who are looking for high loan amounts.
Mortgage loan – how much can you get?
How much you can get from the bank in a mortgage loan depends on the property itself, its location and type. If you own an apartment in the center of a large city, banks are more likely to grant a higher mortgage loan than for an apartment located in a small town.
Most financial institutions are able to grant a mortgage loan of up to 70 percent of the market value of an apartment or house, but it should be remembered that this also depends on the term for which the loan is granted, as well as the bank’s lending policy itself. Some financial institutions will be willing to grant a higher loan, but this is usually the case with really attractive properties and a relatively short contract term.
Costs of a mortgage loan
A mortgage loan has significantly lower costs than an ordinary unsecured consumer loan. This is due to the fact that the mortgage loan is granted precisely against the collateral of real estate, so the bank significantly minimizes its credit risk. When we stop paying the mortgage loan, the institution will easily foreclose on the apartment, house or land, sell it and get its money back. It is important to remember that the mortgage creditor, which is what the bank becomes in the case of a mortgage loan, has priority over other creditors.
In the case of a mortgage loan, we can count on up to twice the interest rate than in the case of an unsecured cash loan. Current offers from banks settle around 5-6 percent per year. Unsecured cash loans are as low as 12 percent.
Disadvantages of a mortgage loan
The biggest disadvantage of a mortgage loan is the mortgage itself, which the bank will establish by lending against the money and the risk that comes with it. If you stop paying the mortgage loan, you could lose your apartment or house. Note that the situation is analogous to a home loan, in which the collateral for the loan is also real estate. The difference is that we may lose an apartment that may have been in our family for generations, rather than a new one that has just been built.
Before taking out a mortgage loan, it is absolutely necessary to carefully analyze your situation and financial capabilities, and think about a possible plan of action in the event that you are unable to smoothly settle the obligation.