What is a mortgage and what is it for.

Mortgage has long become a clear credit obligation. It is a convenient tool that many Ukrainians will definitely need. In general, what mortgage means is the opportunity to buy real estate and already live in it. Therefore, what you need to know about mortgage is the purchase of real estate and repayment for it afterwards.

So, what you need to know about mortgage: it is long-term obligations that allow you to acquire housing immediately. Based on this, it is already clear what the mortgage is for. 

What does mortgage mean? 

When delving into the topic of what a mortgage is, it is worth noting right away that it is a type of loan, just of a different kind. Therefore, what a mortgage is: it is a loan, but only for real estate. It is important to know that this is also a popular type of loan. In addition to what it is, it is important to understand how mortgage works. 

Mortgage is necessary for those who cannot buy a house or an apartment independently and immediately. This type of credit is intended for the purchase of real estate using borrowed funds provided by a bank or other financial institution. Usually, the type of property on which the mortgage was taken is used as collateral. While the mortgage has become an accessible tool for many, it is important to understand what it is, how it works, and for what it can be useful. 

Mortgage is also a long-term loan. It is issued by a bank or another (financial) organization. This means that the borrower takes money from the bank, buys real estate (most often an apartment or house) with it, and the purchased property is held as collateral by the bank until the borrower fully repays the loan amount with interest.

Standard conditions regarding mortgage: 

1. Mortgage is always a long-term obligation. Typically, a mortgage is for 10-30 years. 

2. The interest rate on the mortgage can be fixed or variable, depending on the terms of the contract with the bank.

3. Usually, the collateral is the very real estate on which the mortgage was taken. 

Additional mortgage conditions may also exist, which is important. If we talk about the mortgage mechanism, it is quite simple. After the borrower selects the property, they apply to the bank for a mortgage loan. The bank does not search for such property but rather acts as an intermediary. Then, the bank assesses the borrower's creditworthiness, analyzes their credit history, and makes a decision on granting the loan. At this stage, the client undergoes a significant amount of checks and may receive a refusal. In this case, the credit history is crucial, which the bank client has been working on for the last few years. 

If the application is approved, the bank provides the money to purchase the property, which becomes collateral until the mortgage is fully repaid.

How can a mortgage be arranged? 

In general, a mortgage is a relatively standard loan. Its arrangement algorithm is also simple and clear: 

1. The borrower selects the property they intend to purchase.

2. Before granting the loan, the bank conducts an appraisal of the property to ensure its market value.

3. The borrower provides the bank with documents confirming their income, as well as other necessary information.

4. The bank checks the borrower’s credit history and financial condition and makes a decision.

5. If the application is approved, a loan agreement is concluded between the borrower and the bank.

6. The bank transfers money to the seller, and the property is registered in the borrower's ownership with a burden (collateral) in favor of the bank.

Only after this does the loan repayment process begin. The borrower makes monthly payments over the established period, which include both the principal amount and interest.

Who needs a mortgage and for what? 

A mortgage is an important tool that helps people acquire housing when they do not have the full amount to purchase real estate. Thanks to mortgage lending, many families can solve their housing issue without waiting to accumulate the necessary sum.

Mortgages have their advantages and disadvantages. At the very least, it provides access to housing here and now. A mortgage allows purchasing property even without significant savings.

Also, mortgage payments are usually consistent and logically aligned with the client’s earnings. The borrower is not forced to spend all their savings on purchasing real estate but can spread the payments over a long term.

Through a mortgage, one can start their own business. This means that the purchased property can be rented out and thereby generate some income. In any case, investing in real estate helps protect against inflation. After all, inflation affects money, not real estate. However, this option is not the simplest or most accessible one. 

Types of mortgages 

There are standard conditions for mortgages. All of them affect how much and how long interest payments will need to be made. The most standard and classic mortgage is not only the most popular but also the most profitable. Loan payments are typically evenly distributed over the entire term. That is, the client pays a little each month for more than 10 years. 

There is a separate type of mortgage that is not always available everywhere. This refers to mortgages during military conflicts. This type of mortgage is provided to servicemen participating in government programs. The state helps with the down payment, making this option especially advantageous for those serving in the armed forces. In Ukraine, there are also proposals on how this mortgage will function in the future. Currently, it cannot be officially obtained. 

There is also a type called social mortgage. It is intended for citizens in need of improved housing conditions but lacking the opportunity to take a standard mortgage. Most often, such loans are provided under preferential terms for large families, young professionals, and other categories of citizens.

Separately, it should be mentioned about mortgage refinancing. This type of mortgage loan allows the borrower to change the conditions of an already taken loan by transferring it to more favorable terms. For example, if interest rates have decreased, the borrower can refinance their debt and reduce monthly payments. This is usually necessary for those who find it difficult to make monthly payments. The system works simply: one loan covers another.