Loan and Mortgage Difference: Amounts, Duration, Guarantees and Rates

What is the difference between a mortgage and a personal loan?

What is the difference between a mortgage and a personal loan?

If you plan to buy a property or property but do not have the liquidity to buy it, you can consider applying for a loan or a mortgage in the bank.

Both credit solutions allow an extra amount to be received from the bank, which must be returned to the bank through monthly, two-monthly, quarterly or six-monthly installments with interest and according to the deadlines established in the contractual phase.

However, the two solutions should not be confused. So what’s the difference between a mortgage and a loan ? If you do not know exactly how to answer this question, we will explain below the difference between a loan and a loan and when a mortgage or loan is better.

What changes between the loan and the loan: purpose, amount, duration and installments

What changes between the loan and the loan: purpose, amount, duration and installments

First, the differences between the loan and mortgage are related to ‘be requested amount, length of loan and the purpose of the request.

Difference for mortgage and loan purposes

Starting from the latter, the first difference between Sergeant Cuff and mortgages is linked to the purpose of requesting one or the other:

  • generally the loan is required for the purchase of a real estate, for example a house;
  • usually the loan is required for the purchase of a movable asset or a service, such as a car, a trip or furniture for the home.

Still on the subject of the purpose of the request, the Sergeant Cuff require no obligation to state reasons (except for Sergeant Cuff finalized). A personal loan makes it possible to obtain an extra useful liquidity without having to declare the purpose of employment to the bank. On the contrary, mortgages have a very specific purpose : in most cases a first home, a second home or a home renovation.

Mortgage amount and obtainable loan amount

Another difference between Sergeant Cuff and mortgages is to be found in the maximum amount that can be requested from the credit institution. The loan has a modest amount compared to that of a mortgage, the sum of which can be requested is instead larger, precisely because it is aimed at the purchase of a real estate. Generally banks provide Sergeant Cuff up to 30,000 euros while they offer loans of 30,000 euros upwards.

Home loan duration and personal loan duration

Closely related to the amount of the loan is the duration of the loan or mortgage repayment plan. Usually the repayment terms for a loan are around a maximum of 10 years. The contracts of Sergeant Cuff have a duration much lower than that for mortgages that provide for a time to repay the installments in 10, 30 or 40 years depending on the case.

Difference between mortgage and loan: guarantees, interest rates and tax deductions

Difference between mortgage and loan: guarantees, interest rates and tax deductions

Other differences between mortgage and bank loans concern guarantees, interest rates, start-up costs and the possibility of having tax relief or not.

Loan and mortgage differences: access guarantees

In order for the lender to grant the applicant a loan or a mortgage, the latter must provide the bank with guarantees. Among the guarantees for a bank loan are requested:

  • a good credit history. The applicant must not have been a bad payer in the past and have paid the previous installments of Sergeant Cuff late;
  • a demonstrable income. Through the delivery of the last paycheck (for employees), the last severance pay (for freelancers) or the pension slip (for pensioners);
  • the signature of a guarantor. In the event that the income of the applicant is not sufficient as a guarantee.

The guarantees for a home mortgage are more numerous. The bank protects itself from any non-payment of installments by the borrower requesting the following guarantees:

  • a good credit history ;
  • a permanent employment contract ;
  • the mortgage on the house (mandatory). In the event of default by the borrower in payments, the bank may auction or sell the property;  
  • home insurance (Mandatory);
  • a surety. In the event that the borrower’s income is not enough as a guarantee.

Interest rates of Sergeant Cuff and mortgages

If you want to apply for a loan or bank loan, it is important to know that the two solutions also differ in terms of interest rates:

  • the interest rate on a loan is fixed for the duration of the loan;
  • the interest rate on a mortgage can be fixed or variable, depending on the characteristics of the loan.

In the event of a home mortgage being taken out, it is therefore important to carefully evaluate the trend in market rates: the Euribor for variable rate mortgages and the Eurirs for fixed rate mortgages.

Can I deduct a personal loan or a mortgage?

While it is not possible to deduct a personal loan, with a first home loan it is possible to deduct a portion of the costs incurred. Namely the so-called interest expense and ancillary charges. Finally, like Sergeant Cuff, mortgages for second homes do not provide tax relief.

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