Suppose you have large financial needs in your life. They can be associated with starting a fantastic business that may change your life. Maybe you are going to buy a new car from the showroom. Or maybe it is a less cool (the only right?) Situation, because you have to settle accounts with the shouting, insulting and demanding family. Or, horror, there will be some serious health problems that require a lot of money.
What to do when you need to organize for a given order amounts of, say, over USD 100,000? If you are the owner of a property, e.g. a flat, a house, a construction plot, a mortgage loan can help. A mortgage loan is a means for any purpose secured on a real estate mortgage.
What is a mortgage?
A mortgage is a bank loan that has no specific purpose and is secured on a property mortgage. The loan interest rate is definitely lower than cash loans.
Step-by-step mortgage loan
Getting a mortgage is not much different from a classic mortgage. To standard steps I would include:
1. a meeting with a credit expert to analyze finances, real estate and bank offers,
2. selecting offers and completing the necessary documents,
3. submission of loan applications,
4. credit application analysis,
5. credit decision,
6. loan agreement, analysis and signing,
7. payment of a mortgage loan.
Banks consider a mortgage as a loan with a higher risk than, for example, a loan to buy an apartment or build a house. Therefore, they usually set a higher interest rate. The best offers start at a level slightly lower than 5%, the most expensive loans can cost even around 7%.
I would list the following costs among the most important costs.
1. 0-5% commission,
2. property valuation costs USD 0-800,
3. entries to the mortgage and PCC- 3,219 USD tax,
4. property insurance 0.06-0.08% / year on the value of real estate,
5. bridging insurance, increasing the margin until the entry in the mortgage by 0.05-2.5%,
6. commission for early repayment up to 3% for the first 3 years.
Pursuant to the Mortgage Act, which also applies to loans, banks may charge a commission for early repayment of up to 3% for the first 3 years. There are several banks on the market that offer free overpayment of loans from day one of the loan agreement. When choosing a bank, apart from the commission value itself, it should be noted whether it provides such an option via electronic banking. This is only available in a few banks. In addition, a nice solution is the possibility of shortening the loan period without having to conclude an annex. This option, in turn, is really very limited.
What can you spend the money on?
In general, it can be assumed that the funds can be used for any purpose. You can spend them on whatever you want: travel around the world, repay financial obligations, buy a car, renovate your property (although in this case a loan for renovation or finishing your property will be a much better solution). Unfortunately, in many banks you will find a provision in the contract prohibiting the use of funds for business and speculative purposes, e.g. the purchase of shares on the stock exchange. At the same time, the bank has no real possibility of checking what you spent the money earned on. The funds are mobilized and that would be enough. In contrast to the special-purpose loan (for the purchase, renovation, finishing, consolidation), the bank does not require documenting the purpose of the money obtained.
What is the maximum funding amount?
Just like in the case of mortgages here as well as the bank, there are different rules. Each bank has its own policy and individual approach to granting mortgage loans. A mortgage loan, as from the banks’ point of view is a more risky financial product than a loan for the purchase of real estate, is subject to higher limits.
The vast majority of banks will grant a mortgage loan up to a maximum of 50-70% of the market value of the property. Probably only one bank declares that it will grant funds for any purpose, setting LTV at 80% of the property value. The second limitation is the nominal amount of the loan. In several banks, it may not exceed USD 300,000. Sometimes it depends on the analyst’s individual assessment. Since, as a rule, mortgage loans should not be used for business purposes, the borrower who runs his own business will be assessed differently than a full-time employee.
Maximum loan period
In this parameter, you will receive funds for any purpose for a maximum of 25 years. In several banks even less. This is a very comfortable solution that allows you to reduce your monthly commitment. Remember, however, that the longer the loan period, the higher the interest. Even if you decide to pay back over 25 years, remember to overpay the loan.
What real estate can be secured by a mortgage?
The basic condition for granting a mortgage is securing funds on a real estate mortgage. Therefore, in order to obtain a mortgage loan, you must have real estate acceptable to banks as collateral. Ideally, it should be your own apartment, house, plot and even service premises. However, if you don’t own the property, then there are banks on the market that will grant loans secured by a third party. So you can use the mortgage of your family, friend or completely stranger.
The condition for obtaining such a loan is the consent of the owner or owners to charge the entire mortgage on the property. If the mortgage loan is not repaid, the bank will be able to collect the debt from the secured property.