Main Types of Loans

Mortgage Loan

A mortgage loan is the most commonly used type of financing for purchasing a home.

Key Features:

• Loan term of up to 30 years (depending on the bank's conditions).
• Secured by a mortgage on the property.
• Generally offers lower interest rates than personal loans.
• Can be used to purchase a property, build a home, renovate, or refinance an existing mortgage.

Personal Loan

A personal loan is suitable for:

• Home renovations
• Furniture purchases
• Interior finishing work
• Buying appliances or equipment

Typical Characteristics:

• Does not usually require a mortgage as collateral.
• Has a shorter repayment period.
• Carries a higher interest rate than a mortgage loan.

Home Improvement Loan

Some banks offer specialized loans for home renovation and improvement projects. In many cases, additional funds for renovation can also be included as part of a mortgage loan.

Refinancing

If you already have a loan, you may be able to transfer it to another bank under more favorable conditions.

Refinancing can provide:

• Lower monthly payments
• Lower interest rates
• Shorter repayment terms
• The option to combine multiple loans into one

What Is an Interest Rate?

The interest rate is the cost you pay for borrowing money from a bank.

There are two main types of interest rates:

Fixed Interest Rate

A fixed interest rate remains unchanged for a specified period or throughout the entire loan term.

Advantages:

• Predictable monthly payments
• Protection against rising market interest rates

Disadvantage:

• The initial interest rate may be slightly higher than a variable rate.

Variable Interest Rate

A variable interest rate is based on a reference index (such as EURIBOR for euro-denominated loans) plus the bank's fixed margin.

If the reference index changes, your monthly payment may also increase or decrease.

Don't Focus Only on the Interest Rate

Many borrowers compare loans based only on the advertised interest rate.

This is one of the most common mistakes.

A more important indicator is:

APR (Annual Percentage Rate)

The Annual Percentage Rate (APR) includes not only the interest rate but also many of the additional costs associated with the loan, making it easier to compare offers from different lenders.

How Is the Monthly Payment Calculated?

Most mortgage loans use annuity repayments.

This means:

• The monthly payment is usually the same throughout the loan term.
• During the first years, a larger portion of each payment goes toward interest.
• As time passes, an increasing portion of each payment is applied to the loan principal.

This is why it may seem that your loan balance decreases more slowly during the early years of repayment.

What Additional Costs Should You Expect?

Besides your down payment and monthly installments, purchasing a property with a mortgage may involve additional expenses, including:

• Property valuation fee
• Notary fees
• Government and registration fees
• Mortgage registration costs
• Bank fees
• Bank account maintenance fees
• Property insurance
• In some cases, life insurance

Property Insurance

For mortgage loans, banks usually require the property to be insured for the entire duration of the loan.

Property insurance protects both the homeowner and the lender against risks such as:

• Fire
• Flood
• Natural disasters
• Storm damage
• Other covered events, depending on the insurance policy

Life Insurance

Some banks require life insurance, while others offer it as an optional product that may help borrowers qualify for more favorable loan terms.

Depending on the policy, life insurance may provide financial protection in cases such as:

• Death
• Permanent disability
• Other covered events

Coverage and conditions vary depending on the insurance provider and the policy.

What Should You Check Before Signing a Loan Agreement?

✔ Your monthly payment

✔ The total amount you will repay over the life of the loan

✔ The Annual Percentage Rate (APR)

✔ All bank fees and additional charges

✔ Early repayment conditions and fees

✔ Whether the interest rate is fixed or variable

✔ Required insurance policies

✔ Penalties or conditions in case of late payments

✔ Any additional requirements (such as salary transfers to the bank or mandatory banking service packages)

Helpful Tips

• Compare offers from several banks before making a decision.
• Don't choose a loan based solely on the lowest interest rate.
• Make sure your monthly payment will remain affordable even if your financial situation changes.
• Read the loan agreement carefully and ask questions if anything is unclear.
• Keep an emergency financial reserve to help cover unexpected expenses.

Coming Soon

At Dealehome, we believe that making informed decisions is the best investment.

We will soon publish a video in which we share practical experience, useful advice, and important considerations when choosing a mortgage loan.

A link to the video will be added here once it is available.