The acquisition of their own housing has always been an urgent issue for many young families. In European countries, the question of which is better: a loan or a mortgage, is not before citizens at all. The reason is that Western banks make too much difference between these types of loans. In Russia, on the contrary, the gap is not so noticeable. So what is it worth taking from us? Mortgage or consumer credit? What's better? Moscow, and many other cities of the Russian Federation, can boast of such interest rates:
13-14% - mortgage;
17–20% - consumer credit.
As you can see, the difference is not fundamentally large. Therefore, the question of which is better: a loan or a mortgage, is gaining more and more popularity. Let us reflect on this subject, compare all the advantages and disadvantages of these types of lending to the population.
Mortgage: what is it
Before talking about which type of loan is better to take: a loan or a mortgage, let's distinguish between these concepts themselves.
The term "mortgage" refers to a money loan issued to you by a financial institution for the purchase of housing. Moreover, the mortgage loan agreement immediately stipulates the fact that the acquired housing immediately becomes collateral. This means that the purchased apartment will not officially belong to you until you pay off the debt. The owner of the housing will be a bank. Therefore, the answer to the question is. what is better to take - a mortgage or a loan, will to a large extent depend on whether you want to immediately become the owner of the apartment or are ready to live “at home at the bank” for many years.
What does a consumer loan look like?
A large bank is able to issue a consumer loan, without at all being interested in where the money will be spent. Moreover, the acquired house or apartment immediately becomes your property and you can do anything with them. Almost always, to obtain such a loan you will need to attract one or more guarantors. You will also need to provide a security equivalent to the amount required. The advantage in this case is the fact that it is not necessarily housing that acts as collateral. It can be an expensive car, boat, pier, securities and much more. The only condition is the cost of the mortgage. It should be commensurate with the size of the loan.
Banking Requirements
We will talk about the advantages and disadvantages of these types of loans a little lower, and now we discuss the difference in the requirements of banks in both cases. The deadlines and the size of the package of documents can also become weighty arguments in the question of which is better - a loan or a mortgage.
At registration of consumer. A loan financial institution is only interested in a borrower. Usually for verification it is necessary to provide a document confirming the income and ensure the availability of a solvent guarantor.
At the time of a mortgage loan, the bank additionally checks the “cleanliness” of the apartment. On the one hand, it takes much longer, but on the other, you can be sure that no one will be able to challenge the deal in the future. The bank simply will not allow this. If the financial institution has even the slightest doubt about the transparency of the transaction, you simply will not get a mortgage.
If you have the necessary package of documents and a positive credit history, a consumer loan can be obtained per day. The decision to obtain a mortgage may be delayed for 5-7 days. And the package of "mortgage" documents is immeasurably greater.
Interest rate
So, a loan or a mortgage for housing? What's better? For a more accurate answer to this question, it is worthwhile to dwell on the issue of overpayment.
As you know, banking mortgage lending programs are constantly developing and continuously improving. Today, the interest on this type of loans ranges from 10.5 to 15% per annum. And if the loan is taken in currency, then even lower.
But consumer programs are also not far behind. If you do not take into account the fabulously expensive express loans, consumer lending rates rarely exceed 20-21%. It would seem that this is much more than a mortgage. But this is how to look.
For an effective comparison, you need to pay attention not only to the number of the bet, but also to the real overpayment. Since the mortgage is a long-term loan, the overpayment for the entire period can reach 150, sometimes 200% of the initial price. Consumer credit is rarely issued for more than 7-8 years. During this period you will have time to overpay no more than 50% of the cost of housing. So the amount that you are ready to overpay in the end, can be another powerful argument in the question of what is better: a consumer loan or a mortgage.
Calculate additional costs
Consumer lending is rarely accompanied by additional penalties. In extreme cases, they can simply be abandoned.
In the case of a mortgage, additional payments cannot be avoided. Such expenses include, for example, compulsory property insurance. In addition, the financial institution may oblige you to insure not only the acquired housing, but also life and health, as well as insist on title insurance of property rights. All this significantly increases the costs of the borrower.
There is one more important fact. No bank will give you a mortgage without an independent valuation of the property. Needless to say, the borrower will have to conduct this assessment at his own expense. Some information and permissions may also be paid.
Pros and Cons of Mortgages
So which is better: loan or mortgage? Let's think it over.
Like any other type of lending, mortgage loans have both positive and negative qualities. Among the best sides are the following:
- The lowest interest rates. This becomes possible because the risk of non-return in this case is very small. Firstly, the bank very carefully checks both the borrower and the acquired property. Secondly, if something goes wrong, the apartment will simply remain the property of the bank. And this is a very highly liquid guarantee.
- In some cases, it is possible to apply for a subsidy or receive a discount from the state. Then the interest rate for the consumer will decrease to 6–8%.
- A long loan period combined with a minimum interest rate make it possible to make a monthly payment as affordable as possible.
However, there are also negative points. For example, such:
- The need to make an initial contribution of at least 10% of the value of the acquired property. It still needs to be accumulated.
- Just a predatory overpayment. For the amount that you pay in the end, you can buy two, and sometimes three apartments.
- Significant additional costs that cannot be avoided.
- A mortgage loan cannot be small. Obtaining less than half a million rubles is quite difficult. This is due to the fact that the overhead costs of financial institutions in this case are quite large.
- Restriction of ownership until full repayment of the loan. You can live in purchased housing. But renting an apartment, selling it, exchanging it, donating it or making any other legally significant actions with it will fail. It will also be impossible to do redevelopment. This will require a written permission from the bank.
- It is sometimes difficult to repay a mortgage loan ahead of schedule without applying penalties.
Advantages and disadvantages of consumer lending
Still thinking that a mortgage is better for you? A loan for an apartment also has its advantages:
- All applications are considered as quickly as possible and money can be received within 24 hours.
- Borrowers are subject to much less stringent requirements.
- When applying for a consumer loan, you need to prepare a much smaller package of documents.
- You can get any amount. Neither the upper nor the lower limit is, in principle, limited.
- No need for own savings. You can buy an apartment without even money for a down payment.
- Some banks may issue money without collateral. It will be enough to have a good solvent guarantor.
- If you correctly choose a loan package, the overpayment can be very small.
- The borrower immediately becomes the owner of the property and may, for example, rent it out. This can significantly speed up the repayment of a loan.
Cons of consumer lending:
- Compared to a mortgage, the interest rate can be quite high.
- It may be difficult to confirm the solvency of the borrower. Some banks do not consider attracting co-borrowers to increase the maximum loan amount.
To summarize
If you carefully analyze all of the above, it can be noted that in the general case, it is better to use a mortgage to realize the dream of your own housing. However, if most of the amount you already have and for the decisive step is not enough less than half a million, then a consumer loan is just what you need. Especially in the case when you expect to receive additional funds soon, and you need to purchase housing right now and there is no way to wait. Moreover, if you have a good income, but are not able to confirm it officially, you simply will not be given a mortgage.