The renovation or purchase of real estate is a considerable investment. Many people who decide on such an undertaking do not have enough cash to undertake it. The option for them is a cash loan or mortgage loan. Which of these two financial products is worth choosing?
What to look for when applying for a loan?
Customers pay primarily to the cost of credit. And it would seem that they are doing the right thing. In this respect, a mortgage will always be more favorable. However, it is worth remembering that we are primarily on the road to getting money from a mortgage. Setting a mortgage on real estate is a possibility to get a loan on more attractive terms. Definitely such a solution carries a lot of risk. In the event of difficulties with repayment, the bank can collect the property without any obstacles.
How much will you borrow?
When deciding to take a loan, we should consider first of all how much we will borrow. If you need more cash (over $ 50,000), you may need a mortgage. The maximum amount we can apply for under a mortgage depends on the bank itself, the cost of the investment, as well as our financial standing. Cash loans allow us to borrow even small amounts. The minimum limit depends on the bank’s individual offer. The maximum, however, on the source and amount of income. In some banks it may amount to as much as $ 500,000.
When can we take a mortgage?
A mortgage is a special-purpose loan. In practice, this means that we can only take it if we can clearly specify and document the purpose of the loan. The money awarded to us for the mortgage will not be transferred to our account. We will not receive them in cash. They go directly to the seller’s account. However, there is an exception to this rule. If the money from the mortgage will be used to cover, e.g. renovation costs, we will have to document their use by settling with the bank.
In this respect, the mortgage is in considerable opposition to the cash loan, in which we receive the money in a form suitable for us and it can be used for any purpose.
Cash loan – much more expensive
The lengthy mortgage procedure can deter some customers. When submitting an application for a cash loan, we do not have to wait long for the bank’s decision. Unfortunately, the lack of collateral in the form of a mortgage makes it much more expensive than a mortgage. Compared to a mortgage loan, the loan interest rate ranges from 10 to even 40% per annum. Where in the case of a mortgage we can count on interest rates ranging from 8 to 10%.
The undeniable advantage of a cash loan is also the minimum of formalities. If we decide on the offer of the bank in which we have an account, most likely, we will only need an ID card to conclude the loan agreement.