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What is more profitable a mortgage or a personal loan?



If you don’t have enough of your own savings to buy an apartment, you can take out a loan from a bank. But there are several suitable products available at financial institutions. You can take out a home loan or mortgage. To make a choice, it is important to understand the features of one and the other product.

The differences between a mortgage and a personal loan

A personal loan is a non-purpose loan product. It can be taken out for absolutely any purpose – you do not need to report to the bank. You can receive it in cash or by transfer to an account.

Mortgage is a special-purpose loan product. The bank only gives money for construction or purchase of real estate. However, you can not freely dispose of an apartment or house – the object becomes a pledge. This means that you can sell it, give it as a gift, or make alterations to it only with the consent of the credit institution.

Let’s compare the two products by different criteria.

Terms. The maximum term of a mortgage is 30 years. A consumer loan – no more than 7 years. Accordingly, with larger amounts, the credit burden of a non-purpose loan will be much greater.

Financial limits. If you need a large amount, it is better to choose a mortgage. You can get up to 20 million dollars. Consumer loans can’t boast such sums. All that can be obtained in a bank for non-purpose request – about 100-200 thousand. To get more, you will need to provide collateral – a pledge or surety.

Interest rate. A more favorable offer is a mortgage. The bank has serious guarantees of payment – a pledge, so it offers a lower rate. But in the case of a consumer loan, there are no such guarantees. Therefore, the risks of default are built into the cost of the product, namely the rate.

Before you take out a mortgage or personal loan, be sure to study the reviews of specific products.

Documents. The package of documents for a specialized home loan is much more impressive. The papers are submitted in two stages. First, along with the application, you need to attach your passport, marriage certificate, child’s birth certificate (if relevant), income certificate and other personal documents. After the application is approved, you will need to prepare paperwork for the property you are purchasing.

For a consumer loan you will usually need only two documents – your passport and a second document of your choice (passport, ID card, etc.). If you attach your pay slip, the terms of credit will be better. The rate will fall and the financial limit will increase.

Other conditions. An important condition for obtaining a mortgage loan is the down payment. Usually it’s 15-20% of the value of the property.

Pluses and Minuses of Mortgage

To answer the question “What’s better: credit or mortgage? – you need to clearly identify the pros and cons of the products. Let’s start with the home loan.

The pros of a mortgage:

  • low interest rate;
  • the opportunity to use preferential programs;
  • long repayment period, which means a small monthly credit burden;
  • availability of preferential lending programs and government subsidies;
  • assistance from the bank in the paperwork for the property to be purchased;

Despite the impressive list of advantages, mortgages also have disadvantages:

  • complicated process of registration: it is necessary to collect a large package documents and apply to organizations other than the bank;
  • additional costs in the form of compulsory and voluntary insurance, an independent assessment of the property, the services of public services;
  • encumbrance of the purchased real estate. What does it mean? Until the full repayment of the debt can not sell the apartment or house, give it or do redevelopment or repair without the permission of the bank;
  • there are requirements for the property. You can not buy it in an emergency condition, with poor repair, old year of construction. With regard to the private home, it must be equipped with electricity, communications, good access road. High requirements are also imposed to the client, and official employment is obligatory.

Advantages and disadvantages of the credit for the purchase of housing

To compare mortgages and personal loans, let’s move on to a description of the pros and cons of the non-targeted loan.

Advantages of a non-targeted home loan:

  • you can choose absolutely any real estate. The bank does not make it a pledge, so there are no requirements for the object;
  • short repayment periods help to save money – overpayments are lower;
  • low requirements to the client. As a rule, not necessarily formal employment and a long record of work. You do not need to show a certificate of salary;
  • the client can dispose of housing at his discretion. You can give or sell your apartment without notifying the bank;
  • you can save on additional costs, which are in the process of registration of the mortgage. For example, on the insurance of the object or the work of the real estate appraiser;
  • you do not have to make a down payment;
  • you can get a loan in cash, if possible.

Disadvantages:

  • short repayment duration. Maximum – 5 years. If the amount is large, you will have to make large monthly payments. This can be a big blow to the budget;
  • high interest rate;
  • lack of preferential lending programs;
  • small limits on which it is difficult to buy a house or apartment. Even though there is no down payment, you will actually have to pay most of the cost with your own money.