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# What is the Difference Between a Consumer Loan and a Mortgage Loan?

June 4, 2021  

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A mortgage loan has its own specifics that distinguish it from an ordinary consumer loan. Let's find out what the main differences are.

**The purpose of a loan**
Mortgage credit is issued only for the purchase of the real estate, the borrower simply cannot use the funds received for something else.

You can spend a consumer loan on anything.

**The presence of pledge**
In the case of a mortgage, a pledge is imposed on the purchased property, and until the repayment secures the loan. The owner will have to coordinate some actions in respect of their property with the bank before paying the loan, like sale, donation, redevelopment, etc.

To obtain a consumer loan pledge is not required.

**Down payment**
To get a mortgage, a down payment is required. The minimum standard down payment is 3% of the property value.

To get a consumer loan, you do not need a down payment.

**Interest rate**
Typically, mortgage interest rates are much lower than consumer loans.

For a mortgage, the bank carefully checks the solvency of the borrower has a guarantee in the form of a pledge of purchased real estate, which in addition is also insured against major risks. This allows banks to reduce interest rates and create favorable conditions for borrowers.

**Repayment period**
The repayment period of a mortgage is longer - up to 30 years.

A consumer loan usually has a term of a few months to 5 years. But both loans can be repaid prematurely.

**Monthly payment schedule**
Usually, monthly mortgage payments are lower than for a consumer loan, because of the longer repayment schedule.

**Period of repayment**
You can get a consumer loan in 1-2 days.

Obtaining a mortgage loan will take longer - in addition to the borrower's documents, the bank will need to carefully check the property and documents on it, and this is an additional time.

**Approved amount**
With the same income, the approved amount will likely be higher for a mortgage loan than a consumer loan.

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**Author:** [Alex Shekhtman CEO & Founder, LBC Mortgage](<https://lbcmortgage.com/team/alex-shekhtman/>)

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