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What is difference between loan and mortgage?: When you want to buy a home, but you don’t have cash, one option is to use a bank loan. Two of the financing programs available to you are the mortgage loan and the real estate loan . But what are the differences between the two, the pros and cons?
What is difference between loan and mortgage?
Although a mortgage is a type of real estate loan, there are clear differences between the two, and these vary from bank to bank. The main difference is the loan guarantee method:
- for the mortgage loan, it is guaranteed with the house for which the loan was made
- for the real estate loan, it is guaranteed with the property that is bought or with other properties (apartment/house/land) of the credit applicant or of third parties.
The main differences between the two types of loans consist mainly in the required insurance, the size of the financed share and the requested guarantee. If you don’t own a home to offer as a guarantee, but you have a sum of money from which you could pay the advance, the best solution for you is the mortgage loan.
If, however, you already have a home and want to buy another one, but you don’t have the money for the advance, the solution is the real estate loan .
Another difference is represented by the interest charged for each type of credit. In the case of the mortgage loan, the interest may vary depending on the fluctuations of a reference index mentioned in the contract. For the real estate loan, the interest rate can be changed at any time depending on the existing conditions on the financial-monetary market.
For the real estate loan, the amount is transferred to the account of the loan applicant, and for the mortgage loan, to the account of the person from whom the respective property is purchased.
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The mortgage loan is more strictly regulated and due to the legislation the interest rate does not vary as easily as in the case of the real estate loan. In principle, banks have the freedom to establish credit conditions according to the internal rules of the institution, and the guarantees are regulated by the Civil Code.
The real estate loan is more permissive in terms of the type of guarantee accepted, but it has a higher degree of risk. Conversely, the mortgage can be perceived as more rigid, but it is considered safer. Both loans have advantages and disadvantages. At some banks, mortgages and real estate loans are represented by the same product, and at others by two different products.