What is the difference between a cash loan and a mortgage (housing) loan? Which bank loan pays off the most? What can we use this type of loan for banking institutions? To these questions, we will try to answer in the most understandable way.
Differences between cash and mortgage loans
The most important difference between these two most popular types of loans is, of course, their purpose. The mortgage (housing) loan is intended for the purchase or construction of the real estate. On the other hand, with a cash loan (or cash loan), we can finance any expenditure, i.e. use it for any purpose.
In addition to the purpose of these two types of bank obligations, the loan period also differs, i.e. the length of repayment and the security. The cash loan can be spread over a maximum of several years. In the case of a mortgage, the repayment period can be up to 35 years.
This type of long-term bank loan is secured by a mortgage on the property, while the cash loan does not have to be secured at all. However, some cash loan offers require collateral in the form of insurance or a guarantor.
Which of these bank loans pays off the most?
A mortgage will definitely be a cheaper option, so if we’re going to buy a property, n this case, the cash loan falls out. However, taking into account the purchase of even a car, electronic equipment, a long trip or expensive jewelry, then a mortgage is completely unsuitable, as these items cannot be secured by a mortgage. There is, however, a solution that is very similar to a mortgage, but it is not. We are talking about a mortgage loan.
A solution called a mortgage loan is great for all kinds of expenses – the money obtained in this way can be used for any purpose. And so it can be organizing a wedding, renovation of an apartment or house, a long journey, or even repayment of debts.
The mortgage loan is similar to a cash loan, however, in its case, the collateral is the borrower’s real estate. In this way, we can borrow 70 – 80% of the value of the pledged property at a low percentage and repayment spread over 25 years. However, to be able to take advantage of such an offer, we must be the owner of a property, e.g. an apartment or a house.
Many people think that cash and mortgage loans are two very similar forms of loans. However, this is not the case and these financial instruments are quite different. In addition, since the beginning of 2014, a mortgage requires a down payment as opposed to a cash loan – so this is another difference between these two types of debt.