What is a loan secured by an apartment or real estate, let’s figure out what it means. This is a win-win option for people who need a fairly large amount of money, but can not provide proof of their solvency to the bank. Most often, the refusal of a loan is due to the fact that the financial organization has concerns that the citizen will not be able to fulfill the obligations assumed. Without being able to provide income certificates and other documents confirming the payment status, the borrower can use this service.
This service allows you to get money profitably, but the potential borrower faces great risks. In case of non-payment of funds, the bank will have the right to his housing. The usual financial relations of the organization and the debtor do not provide this option, now you know what a loan secured by an apartment is, and why you should agree to such an offer after thinking about the situation.
Among the advantages, it is worth noting that the segment of so-called mortgages consists of offers from major banks. Since in the case of real estate mortgages, we are talking about large amounts and the transaction itself is more complex, it is engaged in system-forming institutions. Financial organizations of this level issue loans to the population in full compliance with the law “on consumer lending”.
In addition, the advantages are:
- Higher loan limit
- More loyal terms
Answering the question, what does a loan secured by an apartment mean, you should start with other terms of the agreement with the borrower. Housing or any other real estate under which the loan is taken, removes the lion’s share of the risks that the money will not be returned. Even if the customer stops paying, the bank will be able to claim their housing. The natural consequence of this is an increase in the maximum amount. In consumer loan programs, such amounts are not issued even with income certificates.
Also, choosing a mortgage loan, the client can expect more loyal rates (less overpayment). For example, without collateral is issued at 13% per annum, and with collateral-at 10.8% per annum.
Remember that such compliance of employees is due to the fact that the risks are assumed by the borrower, and the financial institution practically insures itself with real estate. This does not mean that there is a benefit if the client stops paying, but if this happens, there is a possibility that the property will be auctioned off and the debt will be covered along with the accrued interest. Banks are actively involved in property transactions, and citizens should be careful.
Risks and disadvantages of collateral lending
There is a risk that the client will lose their home, because the property under the mortgage becomes a guarantee for the duration of the contract. In the case of applying to a financial organization, a citizen in any case should calculate their strength, so as not to face collectors and lawsuits. If we are talking about a loan of this type, then weigh the “pros” and “cons” is even more carefully.
Among the disadvantages of such a transaction are the following:
- Risk of losing property
- Large penalties for delayed payments
- Additional expenses when processing documents
The lender has the right to put the mortgaged apartment up for auction. This will not happen immediately, of course. Organizations usually take decisive action in this direction after 90 days of delay. The debtor will receive a summons to the court, and in the course of consideration of the case, neither bankruptcy, nor the fact that there is no other housing, nor registration in the apartment of a minor citizen will become mitigating circumstances.
What is a loan secured by an apartment? that is why the mortgage imposes such large risks on an individual. It is worth noting that banks do not favor customers who start delaying payments. For delay, the debtor faces a large fine, for example, payments for delay can reach up to 20% of the annual amount of overdue debt. Information about this should be contained in the contract that is signed with the borrower.
A secured loan is money you borrow that is secured against an asset you own, usually your home. The interest rates tend to be cheaper than with unsecured loans, but it can be a much riskier option so it's important to understand how secured loans work and what could happen if you can't make the payments.
Secured loans are loans that are protected by collateral. This means that when you apply for a secured loan, the lender will want to know which of your assets you plan to use. The lender will then place a lien on that asset until the loan is repaid in full.
Secured loans are protected by an asset. The item purchased, such as a home or a car, can be used as collateral. The lender will hold the deed or title until the loan is paid in full. Other items can be used to back a loan too. This includes stocks, bonds, or personal property.