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.
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.
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.
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.
With the same income, the approved amount will likely be higher for a mortgage loan than a consumer loan.
Select a loan program, calculate the down payment and know your mortgage terms by calling us and getting free and fast consultation with our LBC Mortgage experts! Or get your quick mortgage quote here.