Difference Between Personal Loans And Mortgage
Posted on October 31, 2008 - Filed Under Finance | Leave a Comment
It is rare to find someone who has not availed or will have to avail a personal loan or a mortgage at some point of their life. Even though both loans and mortgages are financial products, both of them are very different in some aspects. While a personal loan is a relatively small sum that is provided by the bank based on the borrower's personal security, a mortgage is a bigger loan that is provided in lieu of collateral, which is usually a landed property.
The biggest disadvantage of a mortgage is that it is linked to a property and therefore the borrower stands to lose the property if he or she is not able to repay the debt in time. On the other hand, an unsecured personal loan does not jeopardize the landed assets that one has. Mortgages are also a lot more complicated and involve a lot of calculations. For example, a mortgage involves charges such as arrangement fees, valuation fees, sealing fees and other costs. The final product is a combination of these costs; there may even be hidden costs if the borrower is not careful enough. A mortgage is provided for property and therefore lenders will make an assessment of the property before sanctioning the loan. On the other hand, in most cases, a personal loan is provided if the lender is satisfied that the borrower has the means to repay the loan as soon as possible.
Mortgage rates are also usually susceptible to interest rate changes effected by the Bank of England. Since they are long term loans, changes in interest rates will affect the total money that is repaid to the bank. Usually, most banks will hike their rates when the central bank increases its rates and lower it accordingly when the rates fall down. However, in most cases, banks have a tendency to pass on higher rates to borrowers and shy away from reducing rates significantly when the central bank lowers its lending rate.
If you would like to have more information on various types of mortgages, please visit our mortgages website
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