Anytime you need to make a big purchase a question you may need to ask yourself is; whether you’re going to take a loan to pay it or not?. Taking loans or mortgages is often a necessity for the norm when making large purchases as you can’t afford to pay the bill all at once, especially when buying a house.
And once you’ve decided to borrow money for a particular purchase, another question can be, is taking a loan beneficial for buying an asset or a mortgage? To have an understanding of both methods and to make a wise decision take a look below at some of their attributes.
Mortgages
Mortgages are significant amounts that are usually taken by placing personal asset or property as collateral. They are often taken for buying a house that is owned by the lender until the debt is repaid in instalments.
Loans
Loans can be of any amount from small to big. A loan is an unsecured form of borrowing money from the lender. They can be used to make purchases as insignificant as buying a dress to buying a house or a car.
Mortgages & Loans
Loans and mortgages differ in many ways. You can take one based on your needs that is more affordable for you to pay back. Here are some of the core differences between the two kinds of money-borrowing methods.
Interest
The interest rates vary from lender to lender in both types of borrowings. So, it’s best to check from different lenders while considering to borrow money. However, when it comes to loans, the interest can be high and may double up the purchase price of an item. A purchase made through loans can take a long time to pay off due to ample interests. Interest rates can range from 3% to as high as 35%. As for mortgages, an interest rate can be meagre depending on its type. It is estimated to be between 3 to 6% on fixed mortgages.
Amount
An amount taken out as a loan can range anywhere from a few thousand to a lac. It can be used to satisfy any minor need or be used in an emergency. A mortgage, on the other hand, can make you the owner of a couple lacs to a million. That is why this method is best to seek when needing to finance a car or a house.
Down Payment
A down payment is the portion of the amount you provide a lender to purchase a house to keep repaying off the rest of the amount in the coming years. Though, you’re not required to pay it when taking a loan. This payment is usually to be made with a mortgage which can be from 20 to 30% of the original amount. However you can find various reputable sites saying that it can go down to 5% as published by get me my mortgage.
Terms
If we talk about terms, with both methods, money can be borrowed in long terms with fixed instalments. The lender will have their own terms for each loan or mortgage. However, mortgages are mostly provided for really long terms, and the longest one can be up to 40 years. Mortgages can also last 10 or 15 years depending on your repaying capability. Loans need you to repay them back in a matter of fewer years. They have to be repaid in a timeframe of a year to 6 or 7 years.