The desire for our own living is undoubtedly something that each of us feels. How can we reach it and what different options can we meet? In this article we will look at a comparison of mortgage and building loan.
What is the difference between a building loan and a mortgage? What are the pluses and minuses there?
“A mortgage is probably the most suitable type of housing loan today. The average interest rate is at the level of 1.75%, but the most advantageous bids attack the 1% limit. The condition is to have a property to be guaranteed for the mortgage, a building loan is a more expensive type of loan.
The average interest rate for the whole market is 3.23%. Here, however, the best deals are also significantly lower and attack the two percent limit. “The advantage of a construction loan is that up to a certain amount does not have to be guaranteed by the property and the interest rate is fixed throughout the repayment period. For example, a building loan can be paid at any time free of charge. “
In the past, building savings with a state premium was widespread, which exceeded 30% – 40% of the deposit, up to 6,000 USD. Later, construction loans were granted with a guaranteed annual interest rate of 6%.
The construction loan was the most affordable loan with the lowest interest rate compared to mortgages. “Mortgages were expensive then, provided with high annual interest rates above 10%, and they only benefited from interest rate bonuses for the entire maturity of the loan, which is past, adding that the mortgage, as well as the building loan, they fulfill the same function for the client and can be said to be an equivalent choice
The client can borrow quite quickly and very cheaply, as interest rates reach a historical minimum and start at an annual interest rate of 0.95%.
Bank reviews the creditworthiness of a particular client’s income, which is not as stringent. “At lower amounts, the building society does not examine the income and looks at the creditworthiness of the previous building savings and not the creditworthiness of the client himself.
If the client did not have building savings, obtaining a building loan as an intermediate loan is less accessible and advantageous for him, ”and adds that if the client met the conditions of building savings, the building society cannot refuse the loan to the client. may happen if it is not sufficient.
In both cases, therefore, mortgage and construction loan, it is communication and building society and insurance on loans earmarked for housing, a significant difference, however, lies in the fact that in the case of a loan from the building society client has to at the beginning of the credit relationship, he knows exactly the interest burden or the costs for the entire repayment period (in the case of a mortgage, the client has information for the coming years and what he will then not know).
“In addition, a building loan from a building society is the only type of loan in our financial market to which the client (after meeting certain conditions of savings) even has a legal claim, adding that the loan for housing with preferential conditions a client who does not meet some of the criteria of the Federal Reserve Fund or a mortgage for young people (for example, under the age of 35 and so on).
The second phase in the system of building savings
The construction loan is a natural second phase in the building savings system. “If the client fulfills the conditions (at least 25% of the target amount saved, savings period of at least 2 years, rating number 64), he is legally entitled to a building loan.
Compared to mortgage loans, building savings also provides a loan solution for lower income groups of the population. In the case of mortgage loans, these are mainly more solvent groups that can afford to pay higher loan installments on a monthly basis.
System of connected vessels
Building savings is a system of connected vessels. For some time, the client prepares funds by saving, which are valued by interest and state premium, and then passes to the construction loan phase. It should also be stressed that building loans of up to USD 50,000 are without proof of income and the need to set up property. “There is another fundamental difference to mortgages in this respect.
While in their case the only form of security is the real estate, in the case of a building loan we are talking about various security options, adding that building loans are also for clients with older age. “Until a mortgage loan is certainly received by a senior aged between 55 and 60 years, in the case of a building loan, it can be granted up to the age of 68,
Guaranteed interest rate
The most important difference between a building loan and a mortgage loan is the fact that the interest rate of the building loan is guaranteed for the entire period of repayment of the building loan. So the client knows at the very beginning what interest rate or monthly installment he will have. “The mortgage rate is usually fixed for a shorter period – for example, 1, 3 or 5 years.”