Do you need financing? Do you know the differences between mortgages and loans? Sometimes they are used interchangeably but the two don’t necessarily work the same way. Continue reading this post to understand which might be more suited for you as we break down how mortgages and loans work.
Giving your business the boost, it needs or buying a house in a paradisiacal destination are activities that make us feel alive but might have a big impact on our finances. In such cases, it might be best to use a financing instrument instead of Deeping into our savings.
How does a mortgage work?
A mortgage is a type of loan that is secured with real estate or a personal property. A mortgage is mostly known as a medium to buy or refinance a new home or property (private or business), but it can also be used for other purposes by accessing the equity in a home of property that you already own.
When you get a mortgage, your lender gives you a set amount of money that you agree to pay back (with interest) over a set period. If you fail to meet the payment requirements established in the contract, your lender will have legal rights to claim and sell your property. This is called foreclosure.
The most common type of mortgages are the fixed-rate mortgages, however there are plenty of options, including: interest-only mortgages, reverse mortgages, etc. depending on your personal situation.
How does a loan work?
From a broader point of view, loans are one of the most widely used financing instruments. The term “loan” can be used to describe any financial transaction where one party (the borrower) receives a lump sum and agrees to pay back the money, and is most cases, interests to another (the lender), usually a corporation, financial institution, or government.
A loan is usually more flexible than a mortgage when it comes to its purpose but also to its payback. A loan may be for a specific, one-time amount, or they may be available as a line of credit up to a specified amount.
Loans can come in different forms with different costs and contractual terms. Some of the most common are: Secured (require collateral such as a house or a car), Unsecured (doesn’t require collateral but usually more expensive), Revolving (can be spent, repaid, and spent again) or Term Loans (paid off in equal monthly instalments over a set period).
|Definition||Secured loans against real estate property, such as land or a house. The property, already owned by the borrower or when its purchase is the goal of the loan, is used in exchange for the money that is paid in instalments over time.||A loan is a financial agreement between two parties. The lender gives money to the borrower in exchange for repayment of the loan principal amount plus interest. The borrower agrees to take on the debt and repay it at the lender’s terms.|
|Types||Fixed-rate mortgages, adjustable-rate mortgages, interest-only mortgages, reverse mortgages, etc.||Open-end and closed-end loans, unsecured and secured loans, student loans, mortgage loans, payday loans.|
Mortgages and loans, two financing instruments for different profiles and situations. To find out which one suits you best, contact Altarius, We offer you a professional and personalized services so that you can achieve your goals and take care of your finances.
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