What is the difference between a loan and a mortgage? Loan Purpose

The overwhelming majority of citizens in the purchase of housing applies for obtaining bank loans. And this is not surprising. After all, everyone wants their own housing, but many people do not agree with him for many years. Before adopting such a difficult decision, it is necessary to take an interest in the types and methods of lending.

What to make out? Loan or mortgage? And that's where the question arises: what is the difference between a mortgage and a real estate loan? Is this concept different or is it the same thing? Let's try to figure it out together.

What is the difference between a mortgage and a loan?

There are several ways to get money to buy a home:

• Classical loan;
• mortgage;
• Consumer credit.

The first one presupposes an initial payment and can be issued for up to 10 years. In this case, you will need to confirm your income and provide information about the official employment.

In the second case, you will necessarily require a pledge, in which quality the purchased housing will act. However, the crediting period in this case is significantly increased.

When making a customary consumer loan, making an initial payment is not necessary, but each specific bank puts forward its additional conditions for registration.

In the framework of this article, we will try to understand what distinguishes a loan from a mortgage. After all, both these products have not only different conditions, but also their advantages and disadvantages.

Pledge

Sometimes citizens are interested in another very interesting question: "How does a mortgage differ from a mortgage?". The term "mortgage" often refers to the pledge itself, which the bank requires as a guarantee that the money will be returned on time. The concept of "mortgage lending" - means the type of loan that can be formalized on the security of the acquired real estate. If you do not get too involved in all the subtleties of the terminology, then we can say with confidence that both of these concepts mean the same thing.

The first thing that distinguishes a mortgage from a loan (Sberbank or other financial institutions) is an indispensable presence of collateral. To issue a mortgage without having collateral at the same time is unlikely to come out. While ordinary credit, including housing, can be obtained without additional guarantees.

Target direction

The next thing that distinguishes a housing loan from a mortgage is the appointment of a loan. Mortgage is an exclusively targeted loan. It will not be possible to spend anything on anything else. Moreover, the procedure for transferring money on mortgages is structured in such a way that the client does not have the opportunity to hold banknotes in his hands and spend "on the side" at least part of the funds.

Of course, any loan can have a designated purpose. What you take money on is most often indicated when you write the application. But the control over the use of funds in this case is much weaker. Therefore, nothing costs, for example, having issued a loan for housing, part of the funds used to repair or purchase new furniture. You can even make a loan that does not have a special purpose. Then you do not have to report where the money went.

Amount and terms of crediting

Real estate is an expensive purchase. It is practically impossible to save part of the salary and save it for it. As long as you collect, the funds will simply depreciate. This issue is important to consider when contacting the bank. The amount that a person can rely on when registering a mortgage will certainly be much more than what is issued within the framework of a regular loan. This is another point in the list of what distinguishes a loan from a mortgage. Getting a normal loan is much easier. Moreover, if the amount is small, then one passport is often enough to obtain it. For mortgage registration you will have to collect a stack of securities and a hundred times to prove to the financial institution its solvency.

From here follows also term of crediting - the following item in the list of that, the credit from a mortgage differs. An average person simply can not pay a huge amount of money quickly. Therefore, a mortgage can be issued for 25-30 years. At a time when the usual crediting period rarely exceeds the ten-year threshold.

Interest Rates and Risks

Another important point of what distinguishes a mortgage from a loan for an apartment is interest and the amount of overpayment. Within the framework of a mortgage loan, you can count on a much lower percentage of overpayment. It is caused by such factors:

• Longer term of crediting;
• Rigid check of solvency;
• Excellent pledge;
• Indispensable insurance of vital risks.

When applying for a normal loan (including housing), the bank not only does not know exactly where the money will be spent, but it can not be absolutely sure that it will receive it back. Therefore, interest rates in this case are much higher.

The difference is for the client himself. If he can not pay the debt on the mortgage, he will simply have to give the newly acquired housing to the bank. Most often, the claims of the financial institution are limited. In case of non-repayment of a normal loan, a person can lose all his property. With a large amount of unpaid loan, the bank will demand repayment of the principal debt, as well as accrued penalties, fines, court costs and other payments. If you count all this in a complex, the amount can go out such that a person simply does not have enough assets to pay off the bank.

Another rather important difference is that when obtaining a mortgage, the bank is most likely to require insuring the collateral itself, as well as the life and work capacity of the client. In ordinary lending, insurance is not mandatory and the bank has no right to demand this. In case you refuse to make out insurance, the only thing that you can "punish" is the increase in the interest rate.

Who issues

You can apply for a regular loan (including housing) not only in the bank. Such services are provided by many financial and credit institutions and microfinance organizations. But for the registration of the mortgage should go only to the bank. And not all of them provide such a service. Especially if the borrower is counting on obtaining favorable conditions for himself.

This is because the issue of a mortgage is connected with the conduct of serious customer checks. To carry out such actions is capable only of a powerful security service, which small credit institutions most often simply do not have.

The amount of the down payment

The next thing that distinguishes a loan from a mortgage is the availability of the down payment and its size. When applying for a consumer loan, the initial payment is usually not required at all or it is very small.

To apply for a mortgage, you simply need to have some amount covering a portion of the planned expenses. And the higher this contribution is, the lower the percentage can be obtained at registration.

What's better?

Investigating the question of how a loan differs from a mortgage for housing, many ask themselves and one more: "In what way is it most profitable to get money?". It is impossible to give a unambiguous answer here. Everything depends on the specific situation.

Mortgage will be beneficial in the event that:

• You can participate in any preferential program.
• You already have small children or you plan to acquire them in the near future. The fact is that in the presence of minor children, even with the loss of collateral, you are required to provide another dwelling.
• Your financial capabilities are stable and you are sure that you will "pull" long-term monthly payments.

If you need a relatively small amount and you already have 60-70% of the cost of housing, there is no point in contacting mortgage loans. It is much more economical to take a normal loan and pay it as soon as possible.

There is another nuance: under the mortgage, the owner of the acquired housing becomes a bank (until the loan is fully repaid), and with ordinary lending, it is your property. If there is an unforeseen and you can not pay the debt, then the mortgage apartment will be sold by the bank, and the credit one - yourself and on your own terms. So you can help out a lot more money, pay off the bank and buy cheaper housing.