It is the instrument used mainly for the purchase of a property. A form of long-term financing in which two parties, lender and borrower, commit themselves to a contract that provides for the issuance of a large sum of money, and its repayment in the form of installments and related interest. Given the high amount of a mortgage, banks impose certain access requirements and guarantees on the applicant.
Here are the main features of a mortgage:
- Sum. The amount that is granted by the bank is huge, precisely because it is aimed at a large purchase, a real estate in fact.
- Rate. The loan is repayable in monthly, quarterly or semi-annual installments.
- Duration. The return may take place over an extended period of time. Usually we talk about 30, 35 or 40 years.
- Guarantees. A permanent employment contract, a demonstrable income, a guarantor, a home insurance and finally a mortgage: all are instruments with which the bank protects itself against possible default by the borrower.
- Interest and accessory expenses. The lighting of a home loan entails costs. Similarly, the repayment of installments carries interest. At the time of signing the contract, carefully consider these aspects too.
- Tax relief. The good news, for those who buy their first home, is that there are tax reliefs to be used. In fact, there is the possibility of deducting part of the interest from taxes.
- Rates: You can choose between a fixed or variable rate, depending on the needs of the individual and the trend in market rates
When you do not need to cover the purchase of a property in its entirety, but only in part, here is the loan has the features most suited to your goal. It is a form of short-term financing (under 5 years) and that includes a sum lower than that obtainable thanks to a mortgage.
Here are the main features of a loan :
- Sum. The loan usually has a modest, small amount.
- Duration. The maximum duration of a loan repayment contract is around 10 years. Once enormously lower than the mortgage.
- No tax relief. The loan, unlike the loan, does not provide for the possibility of taking advantage of tax relief, by virtue of the sum, reduced in size, and the short deadlines for repayment.
- No obligation to state reasons. Unless the loan is finalized and then assume the characteristics of a real home loan. At that point, the sum is destined for a specific purpose. When this does not happen, you are not required to state the purpose of using the sum agreed, which can also be used for restructuring or furniture.
- Rate: The rate is fixed for the entire duration of the loan.
In summary, below we list the main differences between mortgage and loan:
- Amount of the sum. Large for the mortgage, small in the case of a loan.
- Duration. Long term if you choose the mortgage, even 40 years, short period if you optioned a loan, up to 10 years.
- Timing. You can get a loan relatively quickly. This does not happen with the mortgage, since the requirements and guarantees are examined before proceeding to grant it. The times, therefore, inevitably lengthen.