Pros and cons of a mortgage: to take a home or not

What is a mortgage?

A mortgage is a type of loan product that involves a system of long-term loan installments. A mortgage loan is issued for the purchase of housing with a repayment period of up to 30 years.

When applying for a mortgage, the bank does not issue the full amount of the cost of the home. The borrower must contribute from 10 to 30% from his own money as a down payment. The rest is issued by the bank.

The advantages of mortgage lending entail the demand for this type of loan among Russians, but there are a number of nuances that should be taken into account before making such a significant decision as a mortgage.

What is a mortgage?

The current cost of residential real estate does not always allow citizens to purchase an apartment on their own. To become the owner of your own home, you need to save the required amount for a long time or go into debt. However, there is an alternative, which is a mortgage.

A mortgage is a loan that is issued specifically for the purchase of housing. Having drawn up a mortgage agreement with the bank, you immediately receive the required amount of funds needed to purchase the selected apartment.

After this, you can move into it immediately and live in the mortgaged housing throughout the entire loan term. This is a long-term type of targeted lending, since you can be given up to 30 years to repay the debt (which depends on the terms of the mortgage, the bank and the loan amount).

Note! It is worth understanding that lenders do not give borrowers money in the amount of the full cost of the chosen home. You will have to contribute a certain percentage of your own money, which is called a down payment. Typically its value is 30% of the cost of the mortgage.

The rest of the amount will be paid by the bank. Sometimes lenders allow borrowers to obtain a mortgage without a down payment, but such lending will already provide for more stringent conditions for the borrower.

Of course, there are also preferential programs created by the state. These include military mortgages, maternity capital loans and housing certificates.

This type of lending has become popular in Russia for a long time, and it enjoys great success even in conditions of economic decline. Such large-scale coverage and citizens’ trust in mortgages is explained by all its many advantages.

Advantages and disadvantages of mortgage lending

Assessing the pros and cons of mortgage lending is an important step towards making a decision: to take or not to take a home loan. Unfortunately, along with obvious advantages, mortgages also contain disadvantages that should not be forgotten.

A full understanding of the positive and negative aspects of purchasing a home with a mortgage loan allows the average citizen to make the right decision for their situation.

Pros of getting a mortgage

The main advantage of a mortgage is the opportunity to purchase an apartment or residential building for a citizen who does not have the required amount on hand.

For those who do not want to live with their parents or rent a home, a mortgage loan is the only opportunity to purchase their own square meters.

By taking out a mortgage, the borrower becomes a kind of investor . The cost of real estate is growing on the market every year, so it is almost impossible for an ordinary citizen with an average salary to save the required amount.

But if, having taken out a mortgage, the borrower collected a certain amount after some time, then the loan can be closed ahead of schedule. And later, having sold the apartment, the owner will also receive a larger amount for it.

You can equip a mortgaged apartment to your taste, do any repairs, remodeling and everything that fits within the legal framework.

Immediately after registering the transaction, the borrower becomes the owner of the property and has the right to live in the purchased living space, rent it out, and register relatives.

The only thing that cannot be done with mortgaged real estate is to alienate it, that is, sell, exchange, give or bequeath. All this is available only after full repayment of the housing loan debt.

In addition, there are various government programs to support borrowers, such as:

military mortgage,
“housing for a young family”;
mortgage with state support, etc.

Such programs allow you to obtain a mortgage on preferential terms and significantly save on interest.

What are the disadvantages of a mortgage?

The main disadvantage of a mortgage, like any other loan, is the overpayment. This is money that must be returned to the bank in the form of interest for using the loan.

The level of mortgage rates is already lower than before, but still quite high; in some cases, the overpayment can reach up to 100% of the loan amount.

Another financial disadvantage is the additional costs incurred by the borrower, such as:

annual insurance of real estate, as well as various risks;
payment for appraiser and notary services;
bank commissions (for opening an account, issuing funds, etc.).

Until the borrower's obligations to the bank are fulfilled in full, housing cannot be sold, donated, or exchanged, since it is pledged to the bank. And this is also a significant disadvantage of a mortgage.

The property that is purchased is pledged to the bank until the loan is fully repaid . If the borrower suddenly stops paying the loan, the bank has the right to seize the living space and sell it to pay off the remaining debt. Therefore, the borrower always has the risk of losing the property in case of non-payment.

The moral and financial obligation that hangs over the borrower and often leads to psychological discomfort is another disadvantage of mortgage loans. And if some people tolerate the state of being an “eternal debtor” calmly, then for others it becomes a heavy burden, putting pressure on the psyche.

That is why a person planning to get a mortgage should seriously weigh the pros and cons, maybe even consult a psychologist, and only then make such a responsible decision as a mortgage loan.

Disadvantages of mortgage lending

Of course, not everything is as rosy with a mortgage as it seems at first glance. Firstly, no matter how you look at it, it’s still a loan, albeit under special conditions. You will have to pay interest on the mortgage for more than one year, and most of the monthly payments will initially go towards paying off the interest. You practically cannot influence the reduction of the interest rate, with the exception of special conditions prescribed by the bank. We are talking about the amount of the down payment, the collateral you have and the terms of payment.

One of the main disadvantages of a mortgage is that to obtain it you need a down payment, which, in the best case, is 10% of the cost of the purchased home. If your down payment is minimal, the monthly payments will be quite impressive. Often, they significantly exceed the average cost of renting a one-room apartment, so not everyone can afford a mortgage. Thus, the advertised definition of “affordable housing” can be safely diluted with the words “not for everyone.”

In addition, when purchasing an apartment with a mortgage, the purchased home is registered as collateral, so you will not be able to sell or give it away until you pay off the debt.

Pros and cons of a mortgage at Sberbank

Despite the authority and popularity of Sberbank in Russia, mortgages here, as in other credit institutions, also have their advantages and disadvantages.

Among the positive aspects are:

A widely developed network of Sberbank branches: there are branches everywhere, even in small villages.
Lower rates than other banks.
No commissions.
Availability of programs that allow you to obtain a mortgage loan using government support.
Higher age threshold: a loan for an apartment from Sberbank can be obtained by citizens who will be no more than 75 years old at the time of repayment of the loan.
Possibility to get a loan with just 2 documents.
Mortgages are issued to individual entrepreneurs and pensioners.
When calculating income, not only salary is taken into account, but also other officially confirmed sources.
Easy to use and accessible online banking.

In addition, among the advantages of Sberbank, many note the mortgage calculator. This simple program allows you to remotely determine key loan parameters. This approach allows loan applicants to understand what amount and for how long they can expect.

Like all banks, Sberbank also has several disadvantages . Judging by the reviews, clients of this bank are not satisfied with:

Quite strict requirements for applicants: people with a tarnished credit history will not be able to get a housing loan.
A very meticulous study of the applicant’s package of documents: often the bank requests additional certificates and agreements.
Quite a long process of reviewing the application and making a decision.

In general, we can say that the disadvantages of mortgages from Sberbank are not very significant . It is also worth knowing that Sberbank offers the most favorable conditions for obtaining a mortgage to salary clients and owners of large deposits.

Is it profitable to take out a mortgage in 2020?

If we compare the current conditions for obtaining a mortgage with the situation in the past, then in the current 2020, taking out a mortgage is certainly profitable.

For example, back in 2014-2016, the interest rate on a mortgage agreement was 12% and above, but now this figure is much lower; and the downward trend in rates continues, making mortgages a more profitable and affordable option for purchasing a home.

In 2020, mortgage rates range from 7% to 11% . When purchasing residential space for more than 1 million rubles, 2-3 percent play a significant role, affecting payments and the final overpayment.

Thus, we can conclude that now is the best time to apply for a mortgage for those who cannot and do not want to save for their own home for a long time.

When not to take out a mortgage

Before you take out a mortgage for an apartment, you should not only assess your financial capabilities, but also study market indicators.

Market indicators

First of all, pay attention to the interest rate. The lower it is, the less the overpayment will be. In our country, if the mortgage rate is less than 11-12%, the deal is considered profitable.

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If you look at it on a large scale, the increase in the level of interest on loans depends on the following factors:

due to the introduction of international sanctions, the influx of investment into the Russian economy has decreased;
at the same time, export prices for oil decrease and the ruble depreciates;
It becomes more difficult for banks to attract new capital, as a result of which interest rates on loans rise.

Also take into account the current dollar exchange rate and its tendency to rise or fall. If the dollar rises against the ruble, it means that the Central Bank refinancing rate will increase. This, in turn, will entail an increase in loan rates, incl. and on mortgages.

For example, when there was a jump in exchange rates in 2014, mortgage rates rose to 17-18% per annum. Many borrowers were simply scared to take out a long-term loan at such interest rates, but there was no way out.

Therefore, if a mortgage is issued at a low interest rate, and the foreign exchange market is stable, it’s time to apply for a mortgage now.

When thinking about how to decide on a mortgage, evaluate the following parameters:

your income;
desired loan size;
expected repayment period.

Based on these data, knowing the interest rate, you can calculate the size of the monthly payment and draw conclusions about the possibility and feasibility of obtaining a mortgage.

Also consider the following factors:

additional income (for example, investment or from deposits, or an existing part-time job);
already having loans and other obligatory payments.

Assess whether you will be able to pay the bank the amount of the established payment every month for a long time or not. How stable is your income, will it be enough to have enough money not only to repay the loan, but also for everyday life.

Pros of a mortgage

Of course, such a loan is not cheap, but the positive aspects of a mortgage justify the risks:

You don't need to save a large sum over many years to buy a home. You can become the owner of an apartment or house right now. To do this, you only need to have on hand the amount of the down payment. And the period during which the loan is issued, as a rule, does not last more than 1-2 months.
You can move into the apartment immediately after completing the transaction.
When applying for a mortgage, you can use one of the government social programs, if there are grounds for this. For example, you can receive a subsidy or maternity capital funds, with the help of which part of the debt will be repaid.
By taking out a mortgage on an apartment, you can get a tax deduction.
Even if you lose your job, you can contact the bank with an application for a deferred payment.
The interest rate is lower than on a consumer loan.

If the loan rate is low, your income allows it, and even more so it is possible to receive a subsidy, you should not be afraid to take out a mortgage on your home. Yes, with a mortgage loan, you will have to make monthly payments to the bank, but in return you will get your own home.

Before deciding to take such a responsible step, you should think carefully. Perhaps now is the time when it is better to hold off on taking out a mortgage loan.

Recommendations for potential borrowers

The mortgage will determine the borrower’s budget for a long period of time, so this step must be taken seriously.

Those wishing to apply for a mortgage should pay attention to several points:

Think about your budget for 5-25 years ahead. Try to foresee possible force majeure situations and assess your solvency in such moments. Will you be able to make payments if you become unable to work for a period of time?
Decide on the property. It should be clearly understood that the purchased housing will be pledged to the bank and it will not be possible to sell or exchange it.
Choose a bank wisely, focusing on lending conditions. Check for additional costs: insurance, commissions, fines, etc.
Study the loan agreement. Standard contract templates are available on the website of any bank. Important points of the contract are the interest rate and the conditions for its increase, penalties, requirements for subsequent insurance, conditions for using the purchased apartment, as well as full or partial early repayment.
Be sure to ask for the full cost of the loan . In this document you will see the actual rate.
If your choice falls on a new building, ask the bank for a list of accredited objects. This is a guarantee that the bank has checked the developer and has all the necessary documents permitting construction.

In general, the advantages of a mortgage are much greater than the disadvantages . And if you approach applying for a mortgage without unnecessary emotions, but with a certain amount of prudence and practicality, and adhere to the recommendations presented in our article, then the mortgage loan will not become a heavy burden for you and you will find your home without psychological and financial discomfort.