To take or not to take? - this is the main question of a potential bank client who dreams of owning his own home. A mortgage, like everything in this world, has its positive and negative sides. In some cases it can bring benefits, but in others it can cause a lot of problems.
A mortgage loan is not taken out of a good life, but, on the contrary, with the aim of improving it. In most cases, borrowing money from a bank occurs when there is not enough money. You get benefits as a solution to your problem, but you have to pay for it.
What is a mortgage?
A mortgage is a type of loan product that involves a system of long-term loan installments. A mortgage loan is issued for the purchase of housing with a repayment period of up to 30 years.
When applying for a mortgage, the bank does not issue the full amount of the cost of the home. The borrower must contribute from 10 to 30% from his own money as a down payment. The rest is issued by the bank.
The advantages of mortgage lending entail the demand for this type of loan among Russians, but there are a number of nuances that should be taken into account before making such a significant decision as a mortgage.
Advantages and disadvantages of mortgage lending
Assessing the pros and cons of mortgage lending is an important step towards making a decision: to take or not to take a home loan. Unfortunately, along with obvious advantages, mortgages also contain disadvantages that should not be forgotten.
A full understanding of the positive and negative aspects of purchasing a home with a mortgage loan allows the average citizen to make the right decision for their situation.
Pros of getting a mortgage
The main advantage of a mortgage is the opportunity to purchase an apartment or residential building for a citizen who does not have the required amount on hand.
For those who do not want to live with their parents or rent a home, a mortgage loan is the only opportunity to purchase their own square meters.
By taking out a mortgage, the borrower becomes a kind of investor . The cost of real estate is growing on the market every year, so it is almost impossible for an ordinary citizen with an average salary to save the required amount.
But if, having taken out a mortgage, the borrower collected a certain amount after some time, then the loan can be closed ahead of schedule. And later, having sold the apartment, the owner will also receive a larger amount for it.
You can equip a mortgaged apartment to your taste, do any repairs, remodeling and everything that fits within the legal framework.
Immediately after registering the transaction, the borrower becomes the owner of the property and has the right to live in the purchased living space, rent it out, and register relatives.
The only thing that cannot be done with mortgaged real estate is to alienate it, that is, sell, exchange, give or bequeath. All this is available only after full repayment of the housing loan debt.
In addition, there are various government programs to support borrowers, such as:
- military mortgage,
- “housing for a young family”;
- mortgage with state support, etc.
Such programs allow you to obtain a mortgage on preferential terms and significantly save on interest.
For those who cannot take advantage of the state program, tax deductions are provided . Upon completion of payments, any borrower has the right to apply for a tax deduction for the amount of the principal debt and for the interest paid (“mortgage interest refund”). You can also partially repay the debt with maternity capital or take advantage of the mortgage borrower assistance program.
Those who purchased housing with a mortgage several years earlier (and rates at that time were much higher) were given the opportunity to refinance the loan. The borrower can transfer the loan to another bank offering a reduced rate.
Another advantage of a mortgage is that the bank, before issuing funds to the borrower, carefully checks the housing it has chosen according to all parameters. Therefore, the risk of apartment fraud in this case is practically absent.
In general, mortgage lending has many advantages. However, before signing the contract, the borrower should also be aware of the disadvantages of taking out a mortgage.
What are the disadvantages of a mortgage?
The main disadvantage of a mortgage, like any other loan, is the overpayment. This is money that must be returned to the bank in the form of interest for using the loan.
The level of mortgage rates is already lower than before, but still quite high; in some cases, the overpayment can reach up to 100% of the loan amount.
Another financial disadvantage is the additional costs incurred by the borrower, such as:
- annual insurance of real estate, as well as various risks;
- payment for appraiser and notary services;
- bank commissions (for opening an account, issuing funds, etc.).
Until the borrower's obligations to the bank are fulfilled in full, housing cannot be sold, donated, or exchanged, since it is pledged to the bank. And this is also a significant disadvantage of a mortgage.
The property that is purchased is pledged to the bank until the loan is fully repaid . If the borrower suddenly stops paying the loan, the bank has the right to seize the living space and sell it to pay off the remaining debt. Therefore, the borrower always has the risk of losing the property in case of non-payment.
The moral and financial obligation that hangs over the borrower and often leads to psychological discomfort is another disadvantage of mortgage loans. And if some people tolerate the state of being an “eternal debtor” calmly, then for others it becomes a heavy burden, putting pressure on the psyche.
That is why a person planning to get a mortgage should seriously weigh the pros and cons, maybe even consult a psychologist, and only then make such a responsible decision as a mortgage loan.
Minuses
The disadvantages of a mortgage can radically change the borrower’s decision to take out this type of loan.
The disadvantages of mortgage lending include:
- Huge overpayments. If real estate is taken for a long period, then the amount of overpayments may be equal to two or even three times the cost of living space.
- When taking out a mortgage loan, the borrower pays not only the down payment, there are also other expenses, for example, mortgage insurance, which ultimately amount to a considerable amount, sometimes reaching up to 10% of the cost of the home.
Depending on the bank chosen, the borrower, when applying for a mortgage loan, pays for: paperwork with a notary, life insurance and the purchased living space, for opening a bank account, for the services of an appraiser.
- The property that is purchased serves as collateral from the bank in the event that the borrower stops paying the debt. If this happens, the bank simply seizes the living space and sells it to repay the remaining loan amount. Therefore, there is always a chance of losing the property in case of non-payment.
- Housing taken on a mortgage cannot be sold or exchanged until the entire debt is paid off. We talked earlier about whether it is possible to sell an apartment with a mortgage.
- The bank has strict requirements not only for real estate, but also for the borrower. He goes through a bank check and collects many documents, the main one being the amount of official salary confirmed by the employer. It is not a fact that the bank will approve the application. The main reasons for refusal are bad credit history and low wages.
Read our post “mortgage with bad credit history” if you have doubts about loan approval due to problems with the credit history loan.
- The down payment can be a problem in obtaining a mortgage, since not everyone has the opportunity to save even 15-30% of the cost of housing.
You can find out how to bypass the down payment in our article “Mortgage without a down payment.”
- This is not all the disadvantages of a mortgage . Moral obligation, which sometimes leads to psychological discomfort and a feeling of constant debt to the bank, is another disadvantage of mortgage loans.
Pros and cons of a mortgage at Sberbank
Despite the authority and popularity of Sberbank in Russia, mortgages here, as in other credit institutions, also have their advantages and disadvantages.
Among the positive aspects are:
- A widely developed network of Sberbank branches: there are branches everywhere, even in small villages.
- Lower rates than other banks.
- No commissions.
- Availability of programs that allow you to obtain a mortgage loan using government support.
- Higher age threshold: a loan for an apartment from Sberbank can be obtained by citizens who will be no more than 75 years old at the time of repayment of the loan.
- Possibility to get a loan with just 2 documents.
- Mortgages are issued to individual entrepreneurs and pensioners.
- When calculating income, not only salary is taken into account, but also other officially confirmed sources.
- Easy to use and accessible online banking.
In addition, among the advantages of Sberbank, many note the mortgage calculator. This simple program allows you to remotely determine key loan parameters. This approach allows loan applicants to understand what amount and for how long they can expect.
Like all banks, Sberbank also has several disadvantages . Judging by the reviews, clients of this bank are not satisfied with:
- Quite strict requirements for applicants: people with a tarnished credit history will not be able to get a housing loan.
- A very meticulous study of the applicant’s package of documents: often the bank requests additional certificates and agreements.
- Quite a long process of reviewing the application and making a decision.
In general, we can say that the disadvantages of mortgages from Sberbank are not very significant . It is also worth knowing that Sberbank offers the most favorable conditions for obtaining a mortgage to salary clients and owners of large deposits.
Pitfalls in the client's head
Any borrower is a little scared of being in such a big debt to the bank, and for such a long period of time. Some people cope with their fears, but for others they sit in their heads and do not allow them to live in peace. What are debtors afraid of?
Become insolvent
At the stages of making a decision and applying for a mortgage, all clients think about how much they can pay without compromising the family’s basic budget. Absolutely everyone tries to calculate an acceptable payment manually or using a loan calculator. But not a single borrower is able to predict how life will turn out and what circumstances will arise on the way to repaying the mortgage. In fact, over a long period of payments, anything can happen: both pleasant and tragic. It is the latter that debtors fear.
Experts recommend calculating an acceptable payment amount so that the loan does not become a heavy burden and you do not have to save on everything. When calculating your budget, leave some funds free. It is better to stretch out the mortgage over a longer period and lighten the credit load. Set aside some of your available funds as a reserve in case of force majeure.
What if we move?
Sometimes it happens. A job may appear in another city, or family circumstances will force you to move. You shouldn't be afraid of this. There are bank branches in all cities. The encumbered apartment can be sold or exchanged with the consent of the bank. Mortgages are now being refinanced everywhere and in all banks, and even on more favorable terms. Remember: everything is decided.
What about repairs?
Any home periodically requires repairs. It is impossible to do nothing in the apartment for years. And you need to think about this in advance, even at the stage of applying for a mortgage. If the credit burden is gentle and there are free funds left in the budget, then some time after moving in you can save for repairs. Otherwise, look for a part-time job. And if you're afraid of a wolf, don't go into the forest.
Look at the same topic: What are the alternatives to mortgages in Russia in [y] year? Overview of all options
Or maybe use the available funds to pay off the mortgage?
Could be so. But then you won’t have what is popularly called “NZ”, i.e. reserve funds. This is actually very important psychologically. When a person has spare funds, life is much calmer. Every day, go to sleep and wake up thinking, “How will I pay the mortgage if something happens?” - Yes, no nerves are enough for this.
Will the state help or not?
Indeed, the state has developed a number of programs that actually work and help certain categories of borrowers. Maternity capital, tax deductions, subsidies for young families with children, state employees - all this can and should be used to reduce the credit burden.
Is it profitable to take out a mortgage in 2021?
If we compare the current conditions for obtaining a mortgage with the situation in the past, then in the current year 2021, taking out a mortgage is certainly profitable.
For example, back in 2014-2016, the interest rate on a mortgage agreement was 12% and above, but now this figure is much lower; and the downward trend in rates continues, making mortgages a more profitable and affordable option for purchasing a home.
In 2021, mortgage rates are in the range of 7% to 11% . When purchasing residential space for more than 1 million rubles, 2-3 percent play a significant role, affecting payments and the final overpayment.
Thus, we can conclude that now is the best time to apply for a mortgage for those who cannot and do not want to save for their own home for a long time.
Recommendations for potential borrowers
The mortgage will determine the borrower’s budget for a long period of time, so this step must be taken seriously.
Those wishing to apply for a mortgage should pay attention to several points:
- Think about your budget for 5-25 years ahead. Try to foresee possible force majeure situations and assess your solvency in such moments. Will you be able to make payments if you become unable to work for a period of time?
- Decide on the property. It should be clearly understood that the purchased housing will be pledged to the bank and it will not be possible to sell or exchange it.
- Choose a bank wisely, focusing on lending conditions. Check for additional costs: insurance, commissions, fines, etc.
- Study the loan agreement. Standard contract templates are available on the website of any bank. Important points of the contract are the interest rate and the conditions for its increase, penalties, requirements for subsequent insurance, conditions for using the purchased apartment, as well as full or partial early repayment.
- Be sure to ask for the full cost of the loan . In this document you will see the actual rate.
- If your choice falls on a new building, ask the bank for a list of accredited objects. This is a guarantee that the bank has checked the developer and has all the necessary documents permitting construction.
In general, the advantages of a mortgage are much greater than the disadvantages . And if you approach applying for a mortgage without unnecessary emotions, but with a certain amount of prudence and practicality, and adhere to the recommendations presented in our article, then the mortgage loan will not become a heavy burden for you and you will find your home without psychological and financial discomfort.
Video: Pros and cons of mortgages
Bank-related mortgage pitfalls
The general procedure for the mortgage lending system is regulated by Federal Law No. 102. However, each bank additionally implements its own individual policy regarding the registration of a mortgage, which is related to the requirements for the collateral object, the borrower, the rate and commissions.
Restrictions in the contract
A mortgage agreement may contain some tricks and tricks that are unlikely to be recognized by a person unfamiliar with credit policy. The purpose of these tricks is to make the borrower dependent on the bank.
Restrictions may apply to the rental of the collateral property, redevelopment and exchange. The debtor is obliged to carry out all these manipulations only with the consent of the creditor.
When studying the loan agreement, pay attention to the clauses regarding the prohibition of early repayment, as well as clauses that allow the interest rate indicator to be changed unilaterally. If such clauses are included in the contract, the borrower has the right to challenge them in court, since they violate civil law.
Commissions
Particularly “greedy” lenders try to make money on any service offered to the client. Banks charge for:
- Review of the application;
- Issuing a loan;
- Currency exchange;
- Transfer of funds from one account to another;
- Card issue.
There are other hidden fees that you should find out about from bank employees in advance.
Grade
Whether the client wants it or not, he will have to evaluate the purchased object. Moreover, this must be done by a specialist, and this service costs from 2 to 10 thousand rubles. The cost of the object indicated in the appraisal report will be indicated in the contract. This is what the law dictates, and you can’t argue with it.
Sometimes the bank imposes on the borrower the services of an appraiser accredited by them. This is wrong and can be an expensive “pleasure”. But if the lender insists, then the client will have to agree to this condition.
Insurance
The above-mentioned law “On Mortgage” prescribes compulsory insurance of the collateral. Here the borrower does not have the right to choose whether to insure or not. But additional types of insurance (borrower’s life, title) are not included in the mandatory category.
Lenders often strongly recommend purchasing secondary or comprehensive policies, which significantly hit your pocket. The client has the right to refuse, but banks usually respond to this by increasing the interest rate by 1 point.
