- Emma Parker
- June 18, 2021
Whenever a person needs urgent fund, he immediately starts looking for money, which will mitigate the necessity of cash. Therefore, lenders take advantage of this scenario and begin their business by lending money.
While some lenders provide unsecured loans, some are reluctant to pay cash with such insecurity. Therefore, the only thing that revolves around the borrower’s mind is whether he will get back the total amount or not.
This question of full repayment opens another avenue to lenders who wish to lend money to keep some belonging as security. This type of loan is called a secured loan, and the lender needs not worry about complete repayment even after default.
However, a mortgage loan often leads a borrower towards risk because it is his property that should be kept under the lender’s authority till the repayment is made completely.
A mortgage loan has both advantages and disadvantages. Here we will discuss both.
- Turns the whole procedure of owning a house easy –
With the rising price of essential commodities and property, it becomes unbearable to cope with the situation. While every person dreamt of his own house, the increasing cost hardly allows it to turn into reality.
However, thanks to a mortgage loan help a person to own a property and fulfil the dream. Whenever a person applies for a mortgage loan, after judging the borrower’s ability, a lender offers fund instead of mortgaging that new property.
Although the papers and legal documents will be all under the name of the borrower still there is an applied condition that clearly denotes, “If the borrower fails to repay the outstanding amount then the property will be taken over by the lender at every circumstances.”
So, this is the condition applied to a mortgage loan, but if you consider it part of the process, other facilities are truly price-worthy.
With extended repayment tenure, low interest rate, and monthly payment facility make it easy for a person to own a high-value property of his own. On the other hand, a lender also can stay worried about the repayment as he can possess the property if the borrower becomes a defaulter.
- Long tenure helps a lot –
Generally, mortgage loans are taken because there is a large fund requirement. Unless and until the amount is higher, both the borrower and lender never opt for a mortgage loan. You can easily understand it is not like 1000 pounds loans that can be easily sanctioned.
Usually, borrowers who look for mortgage loan they have maximum requirement of €223,257 in UK. While the minimum amount starts from €50000.
Therefore, you can easily understand it will be burdensome if the loan repayment period will be less than 25 years. Lenders who provide mortgage loan are generally provide lengthy repayment period. For this reason, monthly instalment will come under €1500. Due to long repayment period and small monthly amount, a borrower can easily end up the outstanding amount.
- It is cost saving –
While it comes to the matter of rate of interest, it is much cost saving. As lenders get the opportunity to take over the property as a mortgage, they don’t ask for high interest.
Therefore, it is comparatively lower than a personal loan. Besides, lenders often give discounts on interest which also lower down the instalment amount. This helps to budget just after buying a property.
Due to settling down in a new house, a person needs to expense a lot. In that case mortgage loan becomes helpful as one can easily stay within the budget.
- Debt becomes burdensome –
Although at the initial stage, it may seem like easy repayment. But in due course of time, a borrower can discover how much extra he has paid because of enjoying long repayment tenure.
Generally, a borrower may found out after the complete repayment that he has provided almost €20000 extra money from the total borrowing amount. This happens because of consolidated rates applied through a mortgage loan.
- Enhances the chance of risk –
While lenders find this mode of loan is secured enough, but it is really risky for borrowers. This is because the borrowing is done on the mortgage of property. If a borrower fails to repay the amount at any point, then a lender can take over the property at any time.
For this reason, the mortgage loan is risky from a borrower’s point of view. It has been witnessed that many borrowers fail to release their properties from lenders due to unable to repay.
- Consolidated charges and interest rate –
Initially, it may seem good due to the low interest rate and ease of monthly instalment. But lenders get the comfort of applying additional interest rate in due course of time. This happens because of floating rates. It allows different interests at different times.
Emma Parker is a financial counsellor at LondonLoansBank and has been serving for over 5 years. She is a psychology graduate from the University of Glasgow. Since she has keen interest in the finance field, she pursued a diploma course in banking and finance that led her to opt for her current career. She assists people choose the best loan based on their current financial situation and credit score. As Emma understands how people react to money problems, she gives them a helping hand to solve their financial complications.