What is a mortgage and what do you need to know about it.

What a mortgage is, is known to everyone, even those who do not use it. However, all you need to know about a mortgage is not only the repayment period but also the flexible conditions of such credit obligations. 

Moreover, all you need to know about a mortgage is that it entails quite long-term obligations. Also, for a mortgage, it is important to understand that not everyone is suitable for such loans. 

What does a mortgage mean and what you need to know about its repayment 

When dealing with the question of what a mortgage is and how it works in the long term, it is important to understand the essence of this concept: a mortgage is one of the most popular and accessible ways to acquire real estate in Ukraine. 

Even despite the war, in 2024, Ukrainian banks continue to actively offer mortgage programs, making home purchases possible for a wide range of people. A mortgage loan allows for the purchase of an apartment, house, or land plot with gradual repayment of the cost over many years. 

So, what you need to know about a mortgage: it is a complex loan. It has separate conditions for both obtaining the loan and its repayment. 

In general, a mortgage is a form of lending where the bank provides funds specifically for purchasing real estate. That is, the client cannot spend this money on anything else. At the same Time, this real estate itself serves as collateral for the loan. Until the loan is fully repaid, the apartment or house remains the property of the borrower but is under the bank's lien. This means that if the borrower cannot repay the loan on time, the bank has the right to seize the property to cover the debts.

The features of such a loan are: 

1. Long-term obligations – mortgage loans can be issued for a term of 10 to 30 years.

2. Special collateral – the property purchased with the loan funds acts as collateral.

3. Different interest rates – depending on the bank's conditions, the interest rate on the loan can be fixed or change according to market conditions.

4. Down payment before the loan – when applying for a mortgage, the borrower must make a down payment, which averages 10-30% of the property's value.

These are general conditions, but they vary depending on the bank and even the type of client. 

What mortgage options are available in Ukraine? 

In Ukraine, several different types of mortgages can be obtained. They vary by purpose, conditions, and terms. 

If we talk about the most popular type of loans, it is a mortgage for buying housing. The purpose of the loan is to purchase an apartment, house, or other residential property. Banks may offer different conditions depending on the type of housing (primary or secondary market) and the property's location.

Such loan obligations come with their own advantages and disadvantages. As for the advantages, they include: 

1. The ability to purchase real estate without the need to pay the full amount immediately. This means you can already live in that property. 

2. The option to choose housing from the primary or secondary real estate market. This means you can even buy older housing. 

3. Options with fixed or floating rates. Mortgage terms can be different. 

However, these loans also have their drawbacks. This includes high requirements for the borrower's creditworthiness. That is, not everyone is granted a mortgage. Additionally, the lengthy loan terms must be adhered to for many years. There are also risks of losing housing in the event of an inability to make payments.

Besides the standard mortgage, there is also a mortgage for house construction. This type of mortgage is provided to finance the construction of a private house. In this case, loan funds may be disbursed in installments as construction stages are completed. This type of lending is not the most popular and straightforward, but it can be obtained in Ukraine. Among the advantages of such financing: 

1. The ability to build housing according to your own project.

2. Financing at all stages of construction.

Such a mortgage has its nuances. For example, the risks associated with any construction. Moreover, there are more complex lending conditions and high requirements for the borrower.

What is mortgage refinancing? 

Mortgage refinancing is the option to repay an existing loan with a new loan on more favorable terms. This type of lending is used to lower the interest rate or reduce monthly payments.

Basically, it works like this: there is an old mortgage that is repaid by taking out a new loan. This way, the number of payments is reduced, although they may be stretched over a longer time. All these actions are aimed at extending the loan term. Thus, the overall burden is alleviated. 

The drawbacks of this type of lending include: 

1. Additional expenses for processing a new loan.

2. Not all banks offer refinancing programs.

It is easier for the client in the moment, but long-term obligations are only stretched out. Therefore, it is difficult to judge how effective such a method truly is.