Mortgage lending rates are lower than interest rates on installment loans

Financing is not an easy task, especially for laypeople. Nevertheless, it is worth collecting information and then comparing the offers of the banks, because in some cases this can save several thousand dollars. When choosing a loan, the intended use is of particular importance. On the one hand there are installment loans that can be used for all possible wishes of a person. Regardless of whether the money is to be used to buy a new flat screen TV, a high-tech PC or new living room furniture, the bank itself cannot be proven in detail how the funds are used. The advantage of these installment loans is that no collateral is required. This means that all bank customers who have a fixed income as an employee and who meet some other requirements can use this loan. Even dealers already offer it.

Finance your construction

Finance your construction

The installment loan is offset by loans that are used for construction finance. The borrower cannot determine their use of the funds themselves, but the money should be used for the house that is being financed. The bank can also prove this using cost statements or copies of invoices. At the same time, collateral must always be provided for building loans. The most common security used here is the land charge, which represents a lien on the property. With the entry of this mortgage, the borrower grants the bank the right to auction the house if he is no longer able to raise the loan installments. In the meantime, mortgage-backed loans are no longer only granted as construction loans, but also for other uses.

If the land charge is not sufficient to cover the entire loan amount, life insurance or a home savings contract can also be assigned. Due to the security of the land charge and the use of the money for the respective property, mortgage loans for banks are exposed to far fewer risks than installment loans. This lower risk means significantly lower costs for the bank, which reduces the interest on these loans. On average, construction loans for 5-7% pa can be taken out more cheaply (depending on the credit rating and the mortgage lending value of the property, of course). Another reason for the lower interest rates are the long terms of such loans and the higher contract amounts.

Take out a loan – how much can you get?

Take out a loan - how much can you get?

If installment loans are only taken out for an average of four to five years and their amount is often a maximum of 10,000 dollars, the duration of mortgage loans is between 20-30 years. The loan amounts here range from 50,000 to 200,000 dollars, and some banks even finance from 25,000 dollars. As a result, the bank binds the customer to their house for a significantly longer time and can thus earn significantly more from lending. The bank can lower interest rates through cost and earnings security, because the earnings are already given when the deal is concluded. Every borrower should therefore check the purpose and duration of the loan. In any case, banks’ offers should still be compared based on the annual percentage rate.

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