Have you considered buying a home and are you looking for the most appropriate way to finance your purchase? If you have investigated the subject, surely you will hear concepts like loan and mortgage credit , two terms that are often used interchangeably but that you should know how to differentiate.
What financing formulas can you use when buying your home?
The purchase of your home will probably be the most important financial operation you do in your entire life. Prices are high, so few people can opt to pay the full price of their new cash home. The way of financing is then opened. What options do you have?
- Family personal loan: that a relative (usually the parents) lend you the purchase amount is a way of obtaining enough money without having to resort to the bank and, normally, without the need to pay interest. If you choose this route, be sure to formalize the loan properly, so as not to have problems with the Treasury in your statement.
- Rent with option to buy: in this case, you rent a house that you will buy later, with which part of the money invested in the payment of the rental fees will be deducted from the purchase price.
- Mortgage loan or loan: it is the most common option, in which you turn to a bank that lends you the money and you return it in monthly installments.
Differences between loan and mortgage credit
Well, the objective of both tools is to obtain financing, but they differ in several aspects:
- On the one hand, the mortgage loan is closed. In it, the bank lends you a fixed amount of money that you will be returning periodically in small amounts (installments) during the agreed term. In this case, from the first moment the date on which the debt will be paid, the interest and, ultimately, the total cost of the operation will be fixed. If you wanted to change the conditions of this contract you would have to make a novation (for example, if you want to extend the term or the amount borrowed).
- In the mortgage loan , however, the bank sets a limit on the maximum amount it is willing to lend you. For your part, you have the possibility to decide, for a predetermined time, if you want to make use of the money in part or in its entirety. Normally the interest rate is higher in the credits, and you should also review the differences in commissions or subrogation conditions.
Both have a mortgage guarantee that is nothing more than placing a property as a guarantee for the payment of the debt in case it cannot be met at some time.
What types of mortgage loans / credits exist?
If you have already begun to inform yourself, you will have seen that there are many different types of mortgages. Therefore, one of the parameters that you can use to put a little order in so much information is the interest rate, which is the percentage you will pay to the bank for lending you the money. In this way, you will see that there are three main types of financing:
- Fixed-rate mortgage financing is one in which the interest rate does not vary within the stipulated duration of the same. That is, you will pay the same every month until you finish paying the mortgage.
- In the variable rate mortgage you will also pay the monthly installments, but from time to time (normally 6 months) the installments will be reviewed depending on the interest rate at that time. In our country, most of the mortgages that are signed are variable.
- There are also mixed mortgages that are becoming very popular and that are a mixture of the previous two. In this case, you start paying a fixed interest rate over a term, and when the rate ends it becomes variable. Imagine signing a thirty-year mortgage, of which the first ten have a fixed rate and from the eleventh it is variable.
On the other hand, you can also differentiate mortgages based on the fee set.
- There are those of constant quota in these that remains unchanged for a period that is usually six months or a year and, at the end of this, the same is recalculated. They are the most commercialized mortgages in our country.
- There are also the armored installment , in which even having the variable interest rate, the constant quota is maintained for all the years of the mortgage.
- Finally, there are those of increasing quota , in which a certain fixed percentage will grow every year, which is usually between 1-2% per year. Variable interest changes will also occur in each review.
Keys to opt for the most convenient financing
As you have seen, there are many different types of financing and, within mortgage loans and credits, a wide range of possibilities. Therefore, it is very important that you have clear concepts when requesting one type or another, since you are going to commit for a long time. Informing you correctly to make the best possible decision. Start taking into account the purpose of the mortgage and the initial budget you have.
Once this is done, review the interest rates, as well as the types of fees that you can opt for. In this way, you will choose the option that best suits your needs.