Mexico.- In the financial world, two of the most used concepts are, on the one hand, the loanand, on the other hand, the mortgage, but what is the difference between these two terms? In this note we tell you.
Although a loan and a mortgage are, technically speaking, loansthe truth is that there are many differences between them, both in terms of paying them and the process of requesting them from a banking institution.
Although many can get used to the idea that the interest rate of a loan is similar to that of a mortgage, this concept is, most of the time, practically impossible.
In the first place, it is necessary to begin with differentiating a loan from a mortgage, so it must be borne in mind that, while the first refers to any type of amount that a financial institution grants to its clients; the second refers to a type of specific loan whose objective is to finance the purchase of a living place.
In this framework, while in, in the first case, the person acquires, in this way, a debt that must be covered in the agreed time and with the fixed interest. Meanwhile, in the case of the mortgage, the guarantee of the payment is the house that is bought with the amount lent by the financial group.
Likewise, the use given to a loan and a mortgage are different, since in the latter, from the perspective of the person who acquires it, it is simply used to live in or use the property. On the other hand, loans can have multiple purposes, depending on the type of loan that has been requested (personal, student, business, etc.).
Since in the case of the mortgage the guarantee of payment to the bank is the property itself, the interest rates are usually lower than those of the different types of loans, since the debt contractors live under the threat that the house will be repossessed, so the payment of the amount is safer than when it comes to personal debts.
In addition to this, financial institutions require, whoever requests a mortgage, an initial payment or deposit that can range from 10% to 20% of the total amount. In addition, mortgage insurance will likely be required to cover mortgage costs, as well as a minimum credit score of 620-640 and a steady source of income.
Regarding the loan, although they vary according to the type, one of the fundamental requirements is the credit score, since this serves the institution as proof to know if the person can handle their debts. Likewise, it is also common for factors such as the amount of the loan and the purpose to influence.
We recommend you read:
Finally, another important difference between a loan and a mortgage is the duration to pay it off. Generally, while mortgages take time to pay off in full from 15 to 30 yearsthe loans can be covered between 6 months and 7 yearsdepending on the quantity.
#differences #loan #mortgage