A mortgage on housing does not mean that the consumer is necessarily planning to buy an apartment or a country house. In this case, “housing” is a form of collateral. That is, a client can buy a car, but as collateral for it he puts up an apartment. Naturally, with this type of treatment, the client should already own suitable housing. Please note that the bank may refuse to provide a mortgage if the mortgage apartment is illiquid or has certain encumbrances.
In the case of a mortgage, non-payment of the debt to the bank leads to the fact that the borrower is deprived of the mortgage apartment. In this case, the original purchase will remain his property. There is a small nuance. If the bank’s expenses exceed the cost of the pledged apartment, not only the previously agreed pledge will be sold, but also other real estate of the client. Such real estate can also be a car or other property just purchased on a mortgage by a court decision.
What is the difference between a mortgage and a loan?
The main difference between a loan and a mortgage is the collateral. The acquired property or the existing property acts as a pledge – it does not matter. Also, there is no difference for what purposes the funds will be spent. For example, despite offers for mortgages, banks do not refuse offers with targeted loans for housing.
The presence of a collateral for the bank is a kind of guarantor of payments, so clients receive certain benefits. If we compare the terms for a regular loan and a mortgage, then the mortgage looks much more attractive. It is not only a matter of the possible amount and timing of payments. The main advantage is the lower interest rate. By 2018, the mortgage rate dropped to 9.5% per annum. But the rate on a targeted loan for housing starts at around 12% per annum. Considering that the client has been paying for several years, the difference in the interest rate is quite significant.
Mortgages in the USA
A 4-5 room house in most states is bought for 60,000-150,000 dollars. Americans do not have the opportunity to pay the bills right away, so in 90% of cases they take out a mortgage for a period of 5 to 30 years.
The average cost of a mortgage loan in the United States is, depending on many terms, 3.5-7% per annum. If a resident of another country decides to issue a loan, then due to the emerging risk, the rate may be increased by 1-2%. Keep in mind that in the United States, there are two types of rates:
- floating (can change every few years);
- fixed (set for the entire period of payments).
Loans at floating rates are cheaper, but more risky than at fixed rates. The average borrowed funds are $ 100,000.
In the USA, there is an initial payment for the purchase of real estate, which is usually equal to 30-50% of its price. In some cases, the first payment can be dispensed with, but this usually increases the loan cost.
To issue a mortgage, you will need the following documents:
- passport (or ID card / driver’s license);
- income statement;
- credit history;
- one or more letters of recommendation from banks, in which at least two years of cooperation is confirmed;
- an extract from the account about the amount on it, which will be enough to make an annual payment on the loan;
- copy of the real estate purchase and sale agreement.
This list is not fixed, since each mortgage loan is issued individually. An application for receiving money is processed within 30 days.
Also, Americans will have to spend money on apartment assessment (up to $ 500), processing documents submitted to the bank (up to $ 400) and real estate insurance (1-2% of its value). An optional but important procedure may be to check the condition of the house. For $ 250-500, the object will be monitored, which will reveal all housing defects. By purchasing a mortgage loan, you need to return the bank from $ 700 to $ 1,000 per month. Don’t forget about utility bills – that’s a few hundred dollars more.
The mortgage can be refinanced at any time into a more profitable loan with a lower interest rate.