There are many reasons that you might wish to get a loan to finance your mortgage. The most common question that most people will undoubtedly be thinking at this point is: how can I pay less interest?
If you take out a mortgage, even with a low interest rate, the interest you pay will still amount to a large sum of money due to both the time over which you are borrowing/repaying your mortgage, and also the amount of money on which interest will be charged. For example, say you borrowed $200,000 and had 25 years to repay it; with an interest rate of 3%, you would have monthly repayments of $948. These $948 monthly repayments would amount to a total repayment of $284,527 at the end of the 25 year borrowing period. Of this total repayment, almost $85,000 would be interest.
Most mortgage plans allow for you to pay it off at anytime you wish, or alternatively remain with the repayment plan to which you initially agreed. A lot of people have different views with regard to taking out a personal loan to finance a mortgage, and the majority of people think it not to be a great idea due to the fact that mortgage interest rates are often some of the lowest available.
If you are considering taking out a personal loan to finance a mortgage, you should be sure to make sure of a number of factors first:
Obtain a “payout statement” from your lender: If you ask your lender such as Lenda for a payout statement, this will show how much money is needed to pay off your mortgage on the requested date as well as any terms and fines that may be imposed against early payments being made. The payout (sometimes known as the “payoff”) statement will also include directions as to how to change the amount if you pay on or later than the agreed date. Often formal documentation is not required to obtain this information, and can be received over the phone instead.
Another thing that you should think about when considering getting a loan to finance a mortgage is that a personal loan could provide additional money for a down payment, or even paying for a smaller property.
How is a personal loan different from taking out a mortgage?
The main difference between a personal loan and a mortgage is that a personal loan is unsecured, and a mortgage utilises the property on which you take it out as a potential repayment to claim back the loan should you not be able to be repay it via your own funds.
It could be difficult to purchase a house with a personal loan as well, since they tend only to be accepted for far smaller amounts of money compared to what a mortgage would normally be. It may be a better idea to consider using a person loan for something like home improvements as opposed to the home purchase.
When considering getting a loan to finance a mortgage, it is important to weigh up the differences that exist between a personal loan and a mortgage.
Interest: Personal loans tend to have a higher interest rate than mortgages, in fact, they almost always do.
Loan amount: A personal loan will only usually allow the borrower to borrow up to $100,000 with good credit. A mortgage on the other hand covers loans of up to almost $1m for one property.
Loan length: A personal loan is usually much more short term than a mortgage, and tends to last somewhere between 1 and 10 years. A mortgage on the other hand can have a repayment time of anywhere between 10 and 50 years, and is tailored to what the borrower can realistically afford to pay back each month.
Repayments: Both personal loans and mortgages tend to be repaid on a monthly basis.
Both personal loans and mortgages both offer advantages over the other, and the advantages that a personal loan offer should be considered when thinking about taking one out to fund a mortgage:
Personal Loans
- The borrower will not have to pay income tax on the money borrowed, unless the lender forgives the debt
- Lenders do not require the borrower to make a down payment when applying for a loan
- Repayments tend to be more lax and negotiable – this could be particularly helpful if the borrower finds themselves in financial hardship for a certain time
When considering a personal loan to fund a mortgage, don’t forget the benefits that a mortgage offers you:
Mortgages
- Mortgages will almost undoubtedly offer lower interest rates than a personal loan, and when considering taking out a personal loan to fund a mortgage this should be considered – you will be paying interest on both the loan and the mortgage at the same time. Mortgage lenders will usually offer a lower APR since the loan has the property for which you borrow it at stake – the lender has the right to claim it should you not make the agreed loan repayments
- Planning – when taking out a mortgage, you can get preapproved by the lender before you purchase a property. This allows for better financial planning and will allow you to shop with a better image of what you can realistically afford
Both personal loans and mortgages have major disadvantages as well
Loans
- Repayments durations – most lenders require that you repay a personal loan in less than ten years
- Interest rates – since there is no backup for the lending company should you fail to repay them, they will charge you a higher interest rate in attempt to combat this
- Loan sizes – Personal loans usually only go up to $100,000 dollars and achieving a loan that large would require an excellent credit history. When considering one to finance
Mortgages
Reclaims – if you miss payments on a mortgage, the mortgage company may claim your property to recoup their losses.
Whether or not you should get a personal loan to finance a mortgage is up to you and your own financial situation, but, it is important to consider the advantages that paying solely a mortgage offers should it be possible for you.
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