When is it worth changing your cash loan into a mortgage loan and what fees might this operation entail? Let’s take a closer look at this issue and try to answer the above-mentioned questions.
The conversion of a mortgage into a cash mortgage or, according to another term, the consolidation of cash to mortgage loans is one of the less well-known clients and at the same time undoubtedly attractive opportunities. this is the case with cash loans. At the same time, however, the process of verifying the creditworthiness of a potential customer in the case of mortgage loans is, in principle, much more stringent. It is for this reason that quite a few customers decide to buy an apartment through cash loan financing. We would like to remind you that currently banks offer cash loans for amounts often reaching the ceiling of USD 200,000 and with a maximum repayment period of 84-96 months.
The conversion of a cash loan into a mortgage: what is it and how does it work?
As already mentioned, the change of a cash loan into a mortgage loan can take place in two different variants. In the first case, there is a situation when, for certain reasons, the customer has taken out a cash loan to finance the purchase of the property. In this case, the whole process will not consist of consolidation, but will change the form and terms of the loan. The most important factors of this process, which should be mentioned here, are certainly:
Change in the financial terms of the loan (mortgage loans generally have a lower interest rate than cash loans).
Extension of the liability repayment period. As you know, in the case of mortgage loans, the maximum available contract duration will, in principle, be around 96 months. With regard to mortgage loans, the loan period may be as long as 25-30 years.
Reduction in the amount of monthly installments, resulting both from a lower mortgage interest rate compared to cash, as well as a significant extension of the duration of the contract (the entire commitment is spread over a much larger number of monthly installments).
Importantly, in some cases, it will be possible to change from cash to mortgage loans without having to change banks. It is worth remembering that granting consent to change the form and terms of loan repayment is for the bank a more profitable option than losing the entire commitment to competition. In order to negotiate the terms of the new commitment with the bank, however, it will be best to use the assistance of an experienced credit advisor who can negotiate on our behalf. In this way, we obviously significantly increase our chances of getting a loan according to attractive conditions.
When does it pay to convert a cash loan into a mortgage and what fees can this process involve?
When taking out a cash loan, we usually pay attention primarily to its interest rate, total cost, duration of the contract and the amount of the monthly installment. Optionally, sometimes we are also interested in such parameters as, for example, the possibility of temporary suspension of loan repayment, ie the so-called “credit holidays”. Very often, however, the signed agreement also includes a number of other clauses, which turn out to be particularly important in the situation when the client intends to transfer credit or loans to another bank, for example as part of the conversion of a liability into a mortgage or the inclusion of cash loans in a larger mortgage.
What specific records should you pay attention to in this case? First of all, the contract may contain a provision about the amount of commission for the partial total repayment of the cash loan. Such a document can be downloaded from the bank where we are currently repaying the cash loan, but in the overwhelming majority of cases this will involve the payment of an additional fee.
We also need a loan agreement or a cash loan. If we have such a contract, this aspect will not be a problem. It’s worse if we lost the document somewhere. In this situation, the bank that is our current lender may request a fee for making a duplicate, which usually also involves certain costs.
Therefore, before making a decision to convert cash loans into a mortgage loan at another bank, you should calculate exactly how much it will cost us to repay existing obligations and any additional costs that were mentioned above.
What should you pay attention to when it comes to choosing a mortgage? First of all, we should be interested in the amount of the margin and of course the amount of the monthly installment. In the first case, the offers of the most competitive banks on the market are able to offer the client a margin of only 1.5 percent.
Customers very often apply for a mortgage to “check” how the final offer of the bank will look. It should be noted that this method is not entirely favorable. Submitting too many credit inquiries in a short time will be visible in the Credit Information Bureau database and may negatively affect our credit standing. The latter, in turn, affects both the positive or negative decision of the bank regarding our application, as well as the terms of the mortgage offered to us. Before applying for a loan, be sure to calculate your credit rating. We assure you that it will be extremely easy with our help. On our site you will find a practical and intuitive calculator of creditworthiness.
So how do you find a way out in this situation? In some situations, we will be able to ask the bank to simulate mortgage terms. Most often, however, banks only provide so-called loan calculators, which to a large extent allow you to estimate the possible cost of the loan, monthly installment, etc. A much better solution seems to be the advice of a good credit advisor. Such a specialist has detailed knowledge of credit scoring models used by specific banks, thanks to which he will be able to show us an offer in which we have the best chance of obtaining a favorable assessment of our creditworthiness and thus attractive credit terms.
What can prevent the conversion of a cash loan into a mortgage loan?
Please note that by converting one or several cash loans into a mortgage, we always make a new commitment. This means a thorough verification of our history and creditworthiness by the bank. So, if during the repayment of existing liabilities we happened, for example, to be late with the repayment of installments and this fact was even recorded in the Credit Information Bureau database, we will have to take into account the bank’s negative decision on our application .
Arrears can also be arrears in repayment of installment purchases, credit cards or loans, as long as they have obviously left a mark in the form of a negative entry in the databases. At the same time, it is worth being aware of the fact that credit check, which is checked by banks as standard, works closely with the Economic Information Bureau. In turn, the last entry in our database may also be due to arrears in the repayment of obligations other than credit or loan, such as electricity, water or internet bills.