The rules applied to mortgage loans have been changed over the years, which helps to explain why some misconceptions are created about granting this type of financing. Therefore, it is often a matter of ignorance of the legislation.

On the other hand, wrong ideas are also created about credit processes, which leads people to assume certain information as absolute truth. The most troublesome thing is that there are myths about Mortgage Loans that can lead you to lose money or have your loan application refused.

To ensure that you are appropriately informed when applying for a mortgage to buy a property, here are some myths about mortgage loans that can lead you to make some mistakes. We have also gathered some helpful information about mortgage loans that can help you get more advantageous offers.

Myths about Mortgage Loans

1 – Interest rates are higher

In fact, interest rates are lower. Because the customer is offering a guarantee, the financial institution offers less interest, precisely because it runs less risk of not having the value back.

The creditor has no option but to fulfil the obligation established in the contract and pay the debt within the established deadline. Thus, the rates are considerably lower compared to other modalities, such as personal loans or loans through the electricity bill.

2 – It’s too bureaucratic

In all types of lines of credit available to take out a loan, the bureaucracy is practically the same, regardless of whether or not you need a guarantee. However, it is possible that, in the mortgage loan, some additional documents are requested for data analysis.

The process has been facilitated by technology, aiming at the optimization of time and the quality of service, as well as the safety of the process, both for the financial institution and for the customer.

3 – The bank wants my property

The doubt that goes through everyone’s mind when the financial institution requires a guarantee. There are those who give up getting a loan because of this, but it is nothing more than a myth. No, the bank has no intention of keeping your asset. It’s just for security to pressure the customer to pay the debt that has been made.

The sale of the property can only happen as a last resort, in rare cases. However, to reach this point, several renegotiation proposals are made so that the customer can pay the loan instalments with the revolving interest.

4 – The property must be paid off

If the property of the loan guarantee is not paid off, there is no problem. However, it is necessary that more than half of the property financing has already been paid off and only then can the credit be requested. In this case, refinancing will be carried out in which the financial institution grants the property to the customer and uses part of the resource to pay off the remaining debt.

5 – The collateral property cannot be sold

Another very common myth is the possibility that the property cannot be sold when it has been pledged as collateral for a loan. At least, not before the full payment of debt instalments.

It is possible to negotiate this good and sell it before the term of the contract expires. However, for this to happen, the buyer of the property must pay the outstanding balance to the financial institution, as if paying part of the value to it instead of the owner. The remaining amount will be transferred to the owner of the property.

It is important that the parties are aligned and in full agreement for it to work. The main reason, although the process seems a little complicated, is that the property belongs to the owner and, therefore, you have the right to do what you want with it, even if it is as collateral for a loan.

6 – You don’t need proof of income

Perhaps the most common myth is the most understandable to be like a truth. By placing an asset as collateral for the financial institution, many people believe that it is not necessary to present proof of income. That’s not quite how it happens. Yes, it is necessary, due to the fact that the bank will have a high cost if it takes over your asset. And if you don’t, you’ll have to know that the customer can pay the debt.

As financial institutions do not intend to keep the property, they become very careful to approve this type of credit line. They see the property as both a profit and an expense.

7 – The property must be mine

Placing a property as collateral for a line of credit is always a risk, especially if it’s not your own property. However, it is not a rule. If the owner agrees and signs the contract, there will be no problem and it will be accepted by the bank company with ease.

The owner of the property will be known as the intervening guarantor, that is, he will also be responsible for ensuring that the instalments are paid. Otherwise, it is his property that will be taken back by the bank. An addendum is that the stakeholder does not necessarily need to be a close relative.

8 – The loan will be for the total amount of the property

A myth that can easily deceive and seduce anyone who is thinking about taking out a loan on this line of credit. Unfortunately, it’s not true. The credit limit to be withdrawn cannot exceed the corresponding amount of 60% of the total value of the property. Financial institutions set this ceiling as another way to protect themselves.

Regardless of this, beneficiaries usually request amounts of up to 50% of the total value of the asset, since the value of the properties to be offered as collateral are high. The appraisal of the asset is always carried out by an outsourced company.

The collateral loan myths will, from now on, simply be myths. The financial institution uses this requirement as collateral only to ensure that the debt will be for and for nothing else.

Still, the most recommended thing is to always look for reliable financial institutions that are also renowned in the market. As a great example, Unicus Loans, which is a fintech specialist in property equity, offers the best advantages to the consumer and also all the security he needs to make his loan agreement with complete security.

Published by – Arjun Pundir