Which is better - a loan or a mortgage for the purchase of housing?

The acquisition of own housing has always been an urgent issue for many young families. In European countries, the question of what is best: a loan or a mortgage, to citizens in general is not worth it. The reason is that Western banks set too much difference between these types of loans. In Russia, on the contrary, the gap is not so tangible. So what is it worth to take from us? Mortgage or consumer credit? What's better? Moscow, and many other cities of Russia, can boast such interest rates:

13-14% - the mortgage;

17-20% - consumer credit.

As you can see, the difference is not fundamentally great. Therefore, the question of what is best: a loan or a mortgage, is gaining increasing popularity. Let us also ponder on this topic, 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 draw a line between these concepts.

The term "mortgage" refers to the money loan granted to you by a financial institution for the purchase of housing. At the same time, 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 your debt. The owner of the housing will be the bank. Therefore, the answer to the question about that. That it is better to take a mortgage or a loan, will depend to a large extent on whether you want to immediately become the owner of an apartment or are ready to live "at home with the bank" for many years.

What does consumer credit look like?

Consumer loan a large bank is able to issue, without even being interested in where the money will be spent. Moreover, the purchased house or apartment immediately becomes your property and you can do anything with them. Almost always to get such a loan you will need to draw one or more guarantors. It will also be necessary to provide a deposit equivalent to the required amount. The advantage in this case is the fact that it is not necessary to act as a lodging for housing. It can be an expensive car, a boat, a dock, securities and much more. The only condition is the cost of the mortgage. It should be commensurate with the size of the loan.

Requirements of banking organizations

The advantages and disadvantages of these types of lending will be discussed below, but now we will discuss the difference in the requirements set by banks in both cases. Terms of registration and the size of the package of documents can also become weighty arguments in the matter of what is better - a loan or a mortgage.

When registering the needs. A loan, a financial institution is only interested in the 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 registration of the mortgage loan, the bank additionally checks the "cleanliness" of the apartment. On the one hand, it takes a lot longer, but on the other - you can be sure that in the future no one will be able to challenge the deal. A bank like this will not allow it. If the financial institution will have even the slightest doubt in the transparency of the transaction, you simply will not issue a mortgage.

If you have the necessary package of documents and a positive credit history, a consumer loan can be received for a day. The decision to obtain a mortgage may take 5-7 days. And the package of "mortgage" documents is immeasurably greater.

Interest rate

So, loan or mortgage for housing? What's better? For a more accurate answer to this question, we should dwell in detail on the issue of overpayment.

As you know, mortgage banking programs are constantly developing and continuously improving. Today, interest on this type of loans ranges from 10.5 to 15% per annum. And if the loan is taken in currency, then the lower.

But consumer programs also do not lag behind. If you do not take into account 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 effective comparison, you need to pay attention not only to the figure of the bet, but also to the real overpayment. Since the mortgage is a long-term loan, the overpayment for the whole period can reach 150, sometimes 200% of the initial price. Consumer loans are rarely issued for more than 7-8 years. For this period you will have time to overpay no more than 50% of the cost of housing. So the amount that you are willing to overpay in the end can become another weighty argument in the matter of what is better: consumer credit or 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, you will not be able to avoid additional payments. Such expenses, for example, include compulsory property insurance. In addition, the financial institution can oblige you to insure not only the purchased housing, but also life and health, as well as insist on title insurance of property rights. All this significantly increases the borrower's expenses.

There is another important fact. No bank will give you a mortgage without an independent appraisal of the property. Needless to say that the borrower should conduct this assessment at his own expense. Registration of some certificates and permits may also be chargeable.

Pros and Cons of Mortgage

So what is better: a loan or a mortgage? Let's think about it.

Like any other type of lending, mortgage loans have both positive and negative qualities. Among the best parties can be identified as follows:

• The lowest interest rates. This is possible because the risk of non-return is very insignificant in this case. First, the bank very carefully checks both the borrower and the property to be acquired. Secondly, if something goes wrong, the apartment will simply remain in the ownership of the bank. And this is a very highly liquid bond.
• In some cases it is possible to issue a subsidy or get a discount from the state. Then the interest rate for the consumer will drop to 6-8%.
• Long term loans, combined with a minimum interest rate allow you to make the monthly payment as accessible as possible.

There are, however, negative aspects here. For example, these are:

• The need to make an initial contribution of not less than 10% of the cost of the acquired object. 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, which can not be avoided.
• A mortgage loan can not be small. Getting an amount less than half a million rubles is quite difficult. This is due to the fact that the overhead costs of the financial institution in this case are quite large.
• Limitation of ownership to full repayment of the loan. You can live in the purchased accommodation. But here to rent out an apartment, sell, exchange, give or make with it any other legally meaningful actions will not work. Also, it will be impossible to do the redevelopment. This will require a written permission of the bank.
• It is sometimes difficult to repay a mortgage without applying penalties ahead of schedule.

Advantages and disadvantages of consumer lending

Still think that for you a better mortgage? The 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 drawing up 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, unlimited.
• There is no need for own savings. You can buy an apartment without having money even for the first installment.
• Some banks can issue money without collateral. It will be enough to have a good solvent guarantor.
• If you competently approach the choice of a credit package, the overpayment can be very small.
• The borrower immediately becomes the owner of the housing and can, for example, rent it out. This can significantly speed up the repayment of the loan.

Cons of consumer lending:

• Compared with mortgages, the interest rate can be quite high.
• There may be difficulties in confirming the borrower's solvency. Some banks do not consider the possibility of attracting co-borrowers to increase the maximum loan amount.

Let's sum up the results

If you carefully analyze all of the above, it can be noted that in general, to realize the dream of own housing it is better to still use a mortgage. However, if most of the amount you already have and for a decisive step is less than half a million, then consumption is exactly what you need. Especially in the case when you expect to receive additional funds soon, and housing needs to be purchased right now and there is no way to wait. Moreover, if you have a good income, but can not officially confirm it, you will not be given a mortgage.