When we think about a loan or credit, we usually reach for these basic banking products, such as a mortgage for a flat or a cash loan for any purpose. However, this is not all. Banks have various other interesting solutions that are worth getting to know each other better.
Do you know what a mortgage is and what makes it stand out?
A mortgage usually has very attractive contract terms due to its specificity. The loan repayment is secured by real estate, which means, for the bank, that even if you do not repay the loan, you will be able to receive cash for repayment from the sale of this property.
As a result, the bank is more willing to grant high loans for a long period of lending, but it is usually accompanied by various conditions necessary to meet. One of them is e.g. a complete and accurate definition of the purpose for which we need this loan and most often it is simply the purchase of this property.
If we do not want to tell the bank why we need a loan, we usually reach for a cash loan. The goal is arbitrary, so we receive money and spend it what we want, but the terms of such a loan are worse – the loan period is shorter and the amount is lower, but the interest rate is high. You can even say that it is more expensive than a mortgage.
Advantages of a mortgage loan
However, is there a banking product that is cheap, like a mortgage, and does not require an exact purpose to be defined? Of course. This is what a mortgage loan is all about. It is often mistakenly identified as a mortgage. There is a belief that if a mortgage is involved, the money must be borrowed for an apartment.
Meanwhile, we can use a mortgage to get a loan on attractive terms, with a lower interest rate, and spend it on anything else. What counts for the bank is the fact that the loan is well secured and is therefore able to offer interesting solutions.
How is a mortgage different from a mortgage?
At first glance, both products are very similar. This is actually the case, however, there are some differences. Of course, the most important one concerns the aforementioned purpose of the loan – any with a loan and connected with the purchase of real estate with a loan.
Both products have lower compared to, for example, a cash loan, the interest rate, however, compared to each other – a mortgage loan is slightly more expensive. The loan can be taken for up to 40-50 years. In the case of loans, this time is shorter and usually applies to a maximum of 20-30 years.
By signing a mortgage contract, we can get the whole value of the apartment (less own contribution). In the case of loans, this amount never amounts to the total value of the pledged real estate but only a part of it (50-80%). However, these values are slowly leveling out due to the growing amount of own contribution required for the mortgage loan.