When it becomes necessary to obtain the borrowed funds required to purchase a home, often the only solution that comes to mind is a mortgage. To buy an apartment or a house, you can use other loan products, for example, a consumer loan in cash. What are the advantages and disadvantages of a mortgage over a consumer loan?
Pros and Cons of Home Mortgages
Like any loan, a mortgage gives you the opportunity to purchase property (a separate apartment or your own house) without trying to overtake the growth rate of savings, rising property prices and inflation. Discarding the characteristics that are inherent in all types of loans, we evaluate the specific conditions for the provision mortgage loans.
Let's start with the best aspects of a mortgage:
- One of the lowest interest rates on retail loans is for mortgages. They can make up 10-16.25% per annum, because the risks of non-refundability for collateral with a real estate bank are minimal.
- The possibility of receiving subsidies and compensations from the state, reducing the rate to the level of 7-8% per annum.
- The size of the mortgage depends on the solvency and reliability of the borrower.
- Long term borrowing - up to 30 years, which, combined with a low rate, gives small monthly payments to repay the loan.
Negative features of housing lending under mortgage programs:
- A huge overpayment for the use of borrowed funds and loan servicing for several decades - it can several times exceed the cost of the purchased apartment.
- The need to make an initial contribution from personal funds in the amount of 10-30% of the cost of housing - this amount will have to be accumulated.
- Large additional costs for obtaining a mortgage, in particular: payment for services of third-party organizations that will help prepare documents, find the right apartment option, assess the mortgaged property, insure the risks of loss or damage, and take other related actions.
- Inability to take a small amount on a mortgage program. It is difficult to get less than half a million on a mortgage, since the bank’s overhead costs for issuing it are too large, and it is economically unprofitable to provide such small amounts of borrowed funds. If you buy an inexpensive apartment in a small town or a cheap house in a village, or you don’t have quite a bit to buy the desired housing, the bank may refuse in issuing a mortgage loan.
- Limiting the use of real estate to full repayment of the loan. You can live in an apartment, but rent it out, arrange a redevelopment, start a reconstruction, donate or inherit, register other family members in it, it is possible only with the permission of the creditor bank.
Do not overlook the psychological features that can cause discomfort and increased emotional excitability of the borrower, who has been in bondage for many years. The fact that the bank does not accept funds for early repayment of the loan and without significant penalties can not aggravate the stressful state and it is impossible to speed up the process of repaying the debt. This dependence on the lender is especially pronounced with a unilateral change in conditions loan agreement and an increase in interest rates.
Advantages and disadvantages of a consumer loan for housing
Can calculate consumer credit cash for the purchase of an apartment. Some banks offer to receive for any purpose up to several million rubles without registration as a guarantee of acquired real estate.
Let's talk about the beneficial aspects of buying a home at the expense of consumer loans:
- High speed of considering applications and providing funds;
- Availability and less stringent requirements for potential borrowers;
- Minimum package of documents;
- A guarantee may be a guarantee;
- You can get any amount;
- No need for own savings;
- With a correctly selected loan product - the minimum overpayment for the use of credit funds.
Disadvantages of consumer loans:
- A relatively high interest rate for non-purpose cash loans is about 17-30% per annum.
- Difficulties in confirming solvency - often banks do not provide for the involvement of co-borrowers to increase the total income, which is taken into account when calculating the maximum amount of borrowing.
Loading ...The benefit of using improper consumer credit to buy a home is obvious - it’s better to stretch yourself and pay debts quicklythan living in fear for many years about the possible loss of an apartment mortgaged by a mortgage, paying the bank monthly for property.
