Mortgages, car loans

What is mortgage?

In most cases, a person can only cover a part of the purchase price of the property he is applying for with his own funds. In this case, an option is possible in which most of it is financed through the mortgage. That is: a bank loan secured by a real estate.

What are the types of mortgages?

There are different types and special forms of mortgages. The most commonly used is a commercial mortgage.

Commercial mortgage
Commercial mortgages are the most common form of mortgages. This claim is secured by the Land Register and does not require confirmation from the creditor.

Security mortgage
A security mortgage is more closely related to the existing requirement than a commercial mortgage, and therefore has a stricter character than a commercial mortgage. It is also entered in the Land Register, but the creditor must still prove his claim and cannot refer to the Land Register entry. Since the security mortgage is not a market mortgage, it is not a suitable mean of securing a loan for banks.

Annuity mortgage
If you want to get a mortgage during your retirement, this is called an annuity mortgage. This way, retirees can get a large amount of money and register a mortgage on their property as a security.

Other types of mortgages
There are also other special forms and different names for mortgages:
• In the case of foreclosure, for example, a forced mortgage is used, which provides the lender an additional security.
• A full mortgage exists when several plots of land or real estate serve as collateral for a larger claim.

How does a mortgage work?

1. On our portal, you choose the banks you like in your country, send requests there, and consider the most attractive offers in your opinion.
2. Loan agreement: after drawing up the financing proposal, a loan agreement is signed.
3. Purchase of real estate, collateral: now you sign the purchase and sale agreement and become the owner of the property of your choice. Your collateralized property serves as a pledge to the bank.
4. Issuance of a mortgage: The bank pays the amount of the mortgage in accordance with the purchase and sale agreement.
5. Mortgage interest and depreciation. From now on, you pay the bank interest on the mortgage and use the amortization to pay off the mortgage.

How to finance a mortgage?

This refers to the fact that you must finance at least 20% of the property value determined by the bank using previously accumulated funds. Thus, with the help of a mortgage, you can cover up to 80% of the value of the property. You can finance up to 67% of the property value as a 1st mortgage. You don’t need to amortize this amount, meaning you don’t need to repay it. You can finance another 13% of the property value as a second mortgage.

How to pay off your mortgage?

The regular repayment of a portion of the mortgage within a specified period is called amortization. Typically, you must pay off your second mortgage within 15 years or before you reach retirement age, whichever comes first.

Direct depreciation
With direct amortization, debt is reduced regularly — usually quarterly — by a fixed amount. This reduces the amount of debt and the interest burden.

Indirect depreciation
With indirect amortization, debts remain. As a homeowner, you pay a depreciation amount, for example, in a retirement plan for which the collateral is pledged to the bank as a security. This is how pension assets are multiplied, no later than you retire, the capital will be paid, and the mortgage will be paid for this amount.

What is the difference between a mortgage and a loan?

A mortgage is different from a loan, even though the terms are sometimes used interchangeably. The term “take out a mortgage” is often colloquially used to mean “take out a loan”.
Credit as a term refers to a specific amount of money that a lender provides for a limited period of time.
The mortgage provides this as collateral for a real estate.
Therefore, when it comes to “getting a home mortgage,” real estate serves as collateral for the lender. If the borrower is facing financial difficulties, the lender is entitled to foreclosure.

How to calculate the value of real estate for mortgage lending?

Each bank determines the value of real estate in different ways, but it is based on the market value of the real estate. Typically, the cost of a mortgage is about 20 percent below the selling price. The bank deducts another risk discount from the loan to cost ratio. This also varies depending on the economic situation in the country and this assessment is different from one bank to another. All that remains is the lending limit and therefore the maximum amount that the bank provides for a real estate loan. Generally, the higher is the value of the property, the higher the possible loan is.

If the loan remains well below the lending limit, many banks offer lower interest rates.
When determining the cost of mortgage lending, most banks take into account the following aspects:

• Changes in value for the next 30 years.
• Economic conditions in different industries.
• Possibility of stable lease or stable sale of the property.
• Examination of the physical condition of the property.
• Changes in the region in which the property is located.

To determine the market value of real estate, banks use the method of income, comparative or material value of the object.

What happens in the event of a delay in mortgage payment?

If the borrower pays the agreed payments in accordance with the signed agreement, the mortgage on the property is reduced as part of the agreed payment. In the event of a delay in payment, the creditor has the right to initiate a foreclosure. In case of difficulties with payment, owners should contact the bank in advance in order to find a peaceful solution. Hiding and avoiding contact with the lender is a bad thing to imagine.

Are there any interests or other costs in obtaining a mortgage?

Yes, there are interest and other expenses when applying for a mortgage:
• Annual percentage.
• Interest on the liability if the loan is not paid within a specified period of time.
• Processing fee.
• Cost of determining the cost of a mortgage loan.
• Notary fees for registration of a mortgage.
• Costs for entry into the Land Register.

Before a bank approves a real estate loan, it checks the income situation. It is imperative that the borrower is able to pay interest and payments after deducting daily expenses from their income.

What is adjustable rate mortgage?

Instead of a fixed rate mortgage, you can opt for a variable rate mortgage. The interest you pay is regularly adjusted to match the key interest rate. Advantage: These loans are cheaper than fixed rate loans. However, for real estate financiers, a variable interest rate also carries a huge risk: if the interest rate rises, it can quickly exceed your budget. Therefore, at the current stage of low interest rates, experts advise choosing loans with a floating interest rate for only small amounts. In times of high interest rates, a floating rate loan can be useful in anticipation of a fall in mortgage rates.

When can you cancel your mortgage?

You can cancel variable rate loans at any time with 3 months’ notice. Fixed rate loans are a different matter: they can only be terminated under certain conditions. The legislature of many countries allows you to notify you if you need to sell your property or if you need a higher loan amount. However, in some countries, the bank may require a kind of penalty: early repayment penalty. The amount of this compensation depends on the remaining term of the loan, the agreed interest rate and the current interest rate.

CAR LOANS

What is a car loan and how it differs from other loans?

A car loan is used to finance motor vehicles and is specially designed with the needs of car buyers in mind. When you take out a loan to buy a car, the lender provides you with some amount at a fixed interest rate for a period of time that you can use to buy a car.

You must return the car loan to the bank within the term specified in the contract. With some car financing, so called air financing, most of the loan amount must be paid at the end of the term in the form of a final payment. If this is not possible, the lender can arrange an additional financing. In comparison, financing a car in instalments is easier to plan because the payments from first to last are always the same.

A car loan is a special type of loan. It needs to be used for a specific purpose. For you, the components of a car loan are usually the loan amount itself, interest payable and residual debt insurance, which you can take out, but not necessarily. A good car loan suits your financial needs exactly.

Other factors that make up the conditions of a car loan:
• the amount of monthly payments,
• credit term,
• your credit score,
• and, in the end, the cost of the car that you are going to buy.

When it makes sense to take a car loan?

Basically, a car loan is always useful if you need a car but don’t have enough savings to pay for it in full. Additional funding can help you make your purchase in no time anyway. Car loans are profitable if you can earn more on a new car than on an old one, moreover, by paying money on the loan.

The car is available to you immediately, but you can pay for it in monthly instalments. Moreover, there are people who do not necessarily need a car, but they want a new car because they don’t like the previous one anymore, or because a new car makes commuting to work or a vacation with their family more comfortable. Here, a loan option is also possible, provided that you have enough income to repay it. Therefore, if you cannot pay for the car without a loan, but you have enough money to repay it securely, a car loan may be a good choice.

It is also possible to finance a car with a loan, although you have enough money. This can be attractive, especially given the current low interest rates, as many retailers and banks are now offering cheap financing. Often, you can only buy your dream car in conjunction with an appropriate loan. Then, however, you should check in detail if you really drive cheaper than buying another car with cash.

In many cases, the benefits of the interest rate are offset by a higher purchase price or lower value for the new car. A loan, despite having a full bank account, makes sense if your money is securely tied to, for example, a fixed deposit account, or if it is so well invested that you receive more interest than you would pay with a car loan.

How car loans differ from loans in instalments?

The difference between a car loan and an instalment plan is the purpose of the loan. Thus, you can only use a car loan to purchase a car. Having received an instalment loan for a free order or a universal loan, you can use the provided amount at your discretion.

What are the advantages of car loans over dealer financing?

With a car loan that is independent of the dealer, you, as a buyer, often get a discount on cash payments and can take advantage of high price discounts. These incentives generally do not apply to dealer financing.

Why interest rates on car loans are lower than on an instalment loan?

With a car loan, the car acts as an additional security for the bank. As part of the so-called pledge, the car remains the property of the bank until the loan is fully repaid.

Car loan or leasing?

Leasing is another type of car financing. When leasing, you are provided with a car at a monthly rate. Basically, this is an atypical rental agreement and cannot be compared to a direct car financing.

Unlike conventional financing for the purchase of a vehicle, you do not own a car; you get it as a lease. Therefore, you cannot sell this car during the term of the lease agreement. After the expiration of the term, you have a choice: buy the car from the lesser for the remaining amount or look for something new and exchange it for a newer car. Next, we would like to explain to you what leasing is as a form of financing and what you should take into account:

• Flexibility: On the one hand, leasing offers a lot of flexibility, because you are not tied to a car or car loan for many years, and in many cases you can pre-arrange the car according to your wishes. If you do not like the car, you can change it, for example, after three years.

• Transfer of the right to use: the car does not belong to you. If your financial situation changes, you cannot just sell the car. You just rent a car. This limited freedom of use does not only apply to the sale of a vehicle. For example, if you want to install other tires, you must first ask permission from the lesser, from the bank from which the car was leased. Usually tires cannot travel as many kilometres as they should withstand for the entire lease term. There is a negotiated annual mileage limit. On the other hand, you do not need to pay attention to the mileage limit for a car loan, because there is none. It is almost impossible to terminate the current lease agreement. Unless the potential buyer of the vehicle takes over the lease agreement. Otherwise, the leaser can demand compensation from you.

• Low lease rates: monthly car lease rates are virtually unmatched. Chances are, you will never be able to drive a new car at the same cheap prices as renting with a car loan from an independent bank. However, this favourable rate is often associated with certain conditions, such as a fixed number of kilometres that you are allowed to travel per year, for a certain percentage of the down payment on the vehicle.

• Additional expenses: You should read the fine print carefully when entering into a lease. Often, hidden costs are added to the rental rate, which at first glance seems low. Do you want to drive more than 10,000 kilometres a year? This should be reflected in the monthly rate. Don’t you want or can’t pay 10 or 20 percent of the car’s value? It can also increase the overall cost of the lease. It may happen that, for example, you have to pay for winter tires for a car out of your own pocket. Also note if the rented car is insured by the car fleet insurance from the lesser or if you need to insure the car yourself.

In addition, during the lease period, you must maintain the vehicle at your own expense, as if the vehicle were your own. You have to go to various checks and technical inspections – mainly at your own expense, if the lender has not reflected in his contract.

When to lease a car?

At first glance, leasing seems to be more flexible and cheaper than a car loan, but the obligations and restrictions prescribed in the contract can raise the lease payments. Therefore, it is important to accurately calculate whether leasing is worth your needs. Once you get a car loan from an independent bank, you can simply drive as many miles per year as you like. You can also customize your car however you like and you are the owner, not just the renter of the car. In addition, having a car increases your creditworthiness as it creates material security.