Mortgage as well as a building loan can provide you with housing very cheaply today. Each of these types of loans has its advantages and disadvantages.
Advantages and disadvantages of these loans
The most important advantage of a mortgage over a building loan is that you can borrow for housing very quickly and without previous savings. It is therefore intended for those who have not yet spared, but want to live as soon as possible.
Conversely, a building loan can only be granted by a building society after two years of saving. If you need to borrow earlier, you can get an intermediate loan, but it is usually more expensive than a building loan. In addition, you must save at least 25% of the target amount in order to receive a construction loan.
The advantage of is that you are entitled to a state premium of 5% of your annual deposits. However, the maximum amount is USD 66.39 and you must save at least USD 1,327.80 this year to get it. The big advantage of a building loan is that you have a legal claim to it – if you meet the savings conditions, the bank cannot refuse to give you what can happen with a mortgage. It is also advantageous that they will give you a building loan even at an older age – even after the age of 60 (for example, the maximum age of the applicant is 68 years). Obtaining a mortgage at such a high age is almost impossible.
As far as interest is concerned, lender will determine it mainly based on your creditworthiness. If you have a higher income and are able to repay the loan more easily, you will get a better rate.
Conversely, building societies are more interested in your previous savings than creditworthiness. Creditworthiness is viewed only at higher loan amounts.
The advantage of the bank is also that at lower loans it will not even check your income if you are its saver. For example, lender will not want you to set up a property or a receipt for a loan of up to USD 25,000. Lender will lend you up to USD 30,000 without proof of income, and the lender will provide you with a paperless loan of up to USD 50,000.
Interest is higher for building loans
The mortgage used to be more expensive than a building loan in the past, but at the moment when mortgage interest rates are at record low levels, this is no longer the case. You get a mortgage at some banks for as little as 1.2% per year. Building loans and inter-loans are more expensive.
For example, lender you can get a construction loan from 2.9% per year and an intermediate loan from 3.49%. Her sister company will offer a mortgage from 1.5%. Lender currently provides building loans for housing with an interest rate of 3% per annum and inter-loans with an interest rate of up to 5.99%. But in other hand, the construction loan is at an interest rate of 2.9% and the inter-loan rate is 4.39%.
The disadvantage of an intermediate loan is that you only pay interest during its term, while the principal remains unchanged throughout the repayment period. This is only repaid when the loan is converted into a construction loan.
The interest on the construction loan is constant throughout the repayment period. This can be both an advantage and a disadvantage. If you get advantageous interest rates and rates increase over time, guaranteed interest will pay off. Otherwise, its stability will be disadvantageous.
Lender offers a non-standard solution for a construction loan – you can fix the interest rate for 3 or 5 years, while the interest rate is lower than that for an intermediate loan without fixation.
With a mortgage, there is a legal limit that lender can only lend you up to 70% of the value of the property. Lender can make exceptions and lend you up to 80% to 90% of the value of the apartment, but under new stricter rules the number of these loans is limited.
As for the limits of the amount of the building loan, it is relatively high, so do not worry that it will not cover your ordinary apartment. For example, will lend you up to USD 200,000 of the target amount of a contract and up to USD 170,000. True, you must meet the conditions of sufficient income.
Repayment time limits
In the past, the limits for the repayment period of a construction loan were shorter than in the case of a mortgage, but they are now settling. For example, you get a construction loan for 30 years – just like with standard mortgages.
In repayment, the construction loan is more flexible than the mortgage. While you can repay a building loan at any time in extraordinary installments free of charge, with a mortgage, installments free of charge (greater than 20% of the principal that you can repay at most once a year) are usually only at the time of the fixation change. Otherwise you will pay a 1% extra installment fee.
Fees are higher for mortgage
Mortgage fees are a bit more and are higher than for building loans. lender charges several hundred dollars for providing a mortgage if they do not have the stock and do not forgive it. By way of comparison, building societies charge only a few tens of dollars for building loan processing.
However, if you would like a loan from a building society, the fees are already higher. For example, the contract is one percent of the target amount, which can amount to several hundred dollars.