Mortgage loans are those loans that are linked to providing collateral — immovable property in favor of the lending bank (establishment of a mortgage). They can be for the purchase of property (apartment, house, office, shop, land plot, etc.), as well as for refinancing another mortgage loan, renovation and finishing works, or for construction.
Types of mortgage loans:
Mortgage loan for purchase
Loan for the purchase of property (apartment, house, office, shop, land plot, etc.). For this type of loan you can provide as collateral (mortgage) in favor of the bank either the property subject to purchase or another property of yours or one belonging to third parties. The only requirement is that the property is acceptable to the lending bank.
The purchase object may be an already built property or one that is under construction. Different banks have different requirements regarding the collateral provided.
Mortgage loan for renovation and finishing works
For this type of loan a property (which may also be owned by third parties) acceptable to the bank is mortgaged. The funds from this loan are used specifically for renovating an old property or for finishing a newly built property. A characteristic of this type of loan is that funds are often disbursed in tranches according to a pre-prepared plan for the renovation or finishing works.
Most banks monitor the targeted use of the funds by requiring supporting documents for expenses — invoices or contracts with the contractor; preparation of a bill of quantities and costs.
Mortgage loan for construction
This type of loan concerns the construction of single-family houses. You can obtain this loan whether you will carry out the construction works yourself or will commission them to a contracting company.
Typically, the disbursement of funds for this type of loan is made in separate tranches. These tranches depend on how the expenditure of funds is planned according to the project budget documentation prepared and submitted to the bank.
Mortgage loan for refinancing
The development of the banking market leads to frequent changes in interest conditions among different banks. That is why the terms of your existing loans are not always the most competitive on the market. The refinancing loan offers you the opportunity to save on your current loan costs. Refinancing can be internal — within the same bank, or between two different banks. Refinancing is an excellent tool for consolidating multiple small loans into one larger loan, often for a longer term and with smaller, less risky installments.
Non-purpose mortgage loan
Non-purpose mortgage loans, also called consumer loans with a mortgage or universal mortgage loans, are loans in which banks, as with purpose loans, establish a mortgage in their favor. The advantage here is that they do not monitor the targeted use of the funds (there is no requirement to present invoices, contracts, etc.). Interest rates for this type of loan are higher compared to purpose mortgage loans.
This type of loan is mainly used to cover current needs. Regarding the terms of non-purpose mortgage loans, they are usually for a shorter repayment period compared to purpose loans. For these loans banks lend a smaller percentage of the collateral’s appraisal compared to purpose loans.
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