You may be faced with a choice: will you borrow money with a mortgage or a personal loan? This can be the case, for example, when you borrow money for your home improvement or when you borrow money for your residual debt. What are the differences between these loan products and when is one more attractive than the other?
Mortgage or loan: the differences
Since the mortgage requirements changed in 2013 and 2014, there is actually still little difference between a mortgage and a personal loan. Both loans are compulsory and both loans are in some cases tax deductible. The main difference between a mortgage loan and a personal loan is that a mortgage loan is a loan for which a purchase house acts as collateral.
Borrow money for the renovation
As mentioned earlier, choosing a mortgage or a personal loan can be discussed when you want to borrow for your home improvement. A mortgage loan is in fact only interesting if you want to borrow more than 50,000 euros for your renovation or if you want a loan term of more than ten years. In all other cases, a personal loan is probably the best option.
Advantage of personal loan
The advantage of a personal loan over a mortgage is that you can opt for a shorter term. This allows you to tailor the length of your loan to the length of your loan object and you are more likely to be debt free than with a long term loan. In addition, it is much easier to take out a personal loan. There is no notary or valuation, unlike taking out a mortgage loan. It also saves you fees, which makes a personal loan completely cheaper despite the higher interest rate.
See also: What is a personal loan?
Borrow money from residual debt
Another loan goal where you can choose between a personal loan or a mortgage is to borrow money for residual debt. Sometimes your residual debt can be co-funded into your new mortgage. However, this is not always possible, either because of your income or because of the value of your new home. A personal loan is then a good alternative. You then benefit from the advantages of the personal loan and the tax deductibility of the interest on your loan for your residual debt.
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