From the client’s point of view, the most important difference between a mortgage and a mortgage is the purpose of the loan. A mortgage is an intentional commitment, while a mortgage guarantees funds for any purpose.
In the colloquial language, the terms “mortgage” and “mortgage” are used interchangeably. Meanwhile, it’s worth realizing that they mean two completely different financial products. Pursuant to the provisions of law mortgage loans can only be granted by banks on the principles strictly defined in the Act, meanwhile Mortgage loans are also offered by other financial entities. We explain what all the differences between mortgage loans and borrowings are, what are the pros and cons of both solutions, we analyze which of them will pay off more and we suggest what to choose.
A mortgage as a way to finance the largest expenses
Obtaining a consumer loan or a small loan is usually not difficult – we can choose from offers, very often financial institutions urge us to incur liabilities, and the procedure itself is not particularly complicated on the formal side. In this way, we can quickly finance the purchase of new furniture or unplanned expenses that surprised us before payment. The issue of financing the largest expenses, such as buying a house or mixing, looks completely different. These are obligations that we will pay back often for the next decades, and during this time our financial possibilities can change completely. For this reason, a mortgage is used as collateral – a load-free property that can be taken over by a bank or lender if we stop paying installments.
What is a mortgage?
As we mentioned at the beginning, the mortgage is long-term loan, which has collateral in the form of a mortgage that can be established on the ownership of the property or almost its perpetual usufruct. A mortgage in the country is very often a way to get real estate – buying a house or a flat. Its popularity is also associated with the fact that it is one of the best regulated financial products in law. Pursuant to the aforementioned Mortgage Act, the maximum loan term is 35 years. You can get up to several million dollars. For this reason, legislators have perfected the law over the past few years – currently clients taking out mortgages are much better protected.
The cost of the mortgage
When taking a mortgage, most people pay attention primarily to the interest rate. It is worth being aware that this is not the only cost associated with this commitment. For this reason, it is always worth to read the contract very carefully, as well as pay attention to the APRC – Actual Annual Interest Rate informs us about the total cost of credit expressed as a percentage on an annual basis – it is a very convenient tool for comparing loans.
The total cost of a mortgage usually consists of:
- interest – the interest rate depends on the interest rate – this is the rate determined by the bank, commercial banks do not have an influence on it – and the bank’s margin;
- bank commission – it can hide under various names, the name “preparation fee” is very common, it can be paid once or added to installments;
- insurance – in many cases, banks are pushing for additional insurance to protect us, for example in the event of job loss.
Types of mortgages
It is worth mentioning that we can come across offers of various types of mortgage loans that differ significantly from each other. We can distinguish among others:
housing mortgage – this is the most “classic” mortgage, the money from this loan can be used to buy an apartment or house from the developer and on the secondary market, as well as the purchase of a plot.
construction mortgage – a loan intended for people who are just looking to build their property, the money from the loan will enable the construction to be financed. Although the target collateral for the loan is a mortgage, the bank may require additional collateral at the house construction stage. After the work is completed, the liability is converted into a regular mortgage.
consolidation mortgage – money from a mortgage secured loan enables repayment and combining into several other liabilities, for example consumer loans, car purchases, installments or payday loans;
refinancing mortgage – a solution that involves the transfer of a loan from one bank to another, which offers more attractive conditions for us and repayment of the first liability with money from the other (increasingly better offers appear on the market, which is why it can be profitable in many cases).
How do you get a favorable mortgage?
The decision to grant a mortgage depends primarily on the assessment of our creditworthiness. Usually, it is calculated by the bank on the basis of such criteria as: amount of income, form of employment, living costs and fixed expenses, as well as the history of debt. Unfortunately, banks prefer employment for an indefinite employment contract – other types of contracts can negatively affect creditworthiness, even if we can prove that we regularly receive fairly high income. Counting on a favorable loan, it is always worth ensuring that all obligations are repaid on time.
Of course, we will also need money for own contribution – usually around 20% of the property value. Let’s also pay attention to the amount of monthly installments: we can find mortgage offers with equal or decreasing installments.