First things first! A mortgage and a personal loan are typically different.
And what we are discussing here is using a personal loan to make the down payment on the mortgage.
Can we do that? We definitely can.
But we need to know what we are up to and how it can help us make an informed and valuable financial choice.
To know that, we have to define mortgage and personal loans first.
A mortgage is a secured loan. It means the loan is offered against the holding of an asset or collateral. The loan is known as a mortgage when the collateral is your home (or the new home you want to buy). Since it is secured with an asset, it is called a secured loan. It means your lenders might take hold of your asset if you, by any chance, cannot pay the loan back at the right time and amount.
On the other hand, an unsecured personal loan in Ireland is something different from a mortgage. It is an unsecured loan option. This means a personal loan does not mandate an asset. You can, therefore, use it without worrying about foreclosure (when lenders take hold of your home for defaulting on a loan). A personal loan is also flexible to spend as lenders usually won't set barriers in what categories you will spend the money for.
These two loans are different in many ways. But, one of the primary reasons they are counted as separate loans is because one of them involves collateral while the other one doesn't.
- Mortgages and the Need for Down Payment
Mortgages are loans that usually have high amounts of money. It is because people consider them primarily for buying a home or emergencies. Although it is a popular choice for most borrowers, mortgages come with advanced regulations.
One of them is the down payment requirement.
Not all lenders need them. But most do. A down payment is calculated as a percentage of your home's value. The loan amount you considered taking out might also have a share in this process.
If you buy a mortgage for the first time, you may need to make a down payment of 5% to 10% of your home's financial value.
If you make the down payment, then you might get better opportunities and options. Mortgages have different interest rates and repayment terms as per the loan amount you choose. But, making a down payment might increase these options and stretch your opportunity to browse loans and then come to a decision.
However, what we need to think about here is whether or not we can make the down payment using a personal loan.
- Making a House Deposit/ Down Payment for Your Home Loan by a Personal Loan
In official ways, we might say a 'yes' to that.
But there are things that you should be concerned about. You also need to know if these factors are going to affect both borrowing money/ managing debt and owning your home.
Most lenders will not approve you for a personal loan if you have taken a mortgage from them. However, a borrower can definitely choose another lender to get the loan.
Now the point we all need to put in our heads is that when a personal loan works as the down payment – the full amount – you make the real deal of buying your home debt. It might be risky for you to manage if you haven't prepared well for the deal.
Read the following point to learn how that may happen.
- How to Borrow a Personal Loan for a House Deposit?
We can guide you through a step-by-step process, which can guide you to learn more about how personal loans can be used for a down payment on your mortgage. Throughout the entire process, just try to keep yourself composed.
Step 1: Think of Your Financial Limits
A personal loan for a mortgage down payment is undoubtedly a good idea. But then again, it is a larger responsibility on the financial side than maintaining just the mortgage loan.
Therefore, take a look at what your personal finances tell you at the moment. Understand your present needs of yours in terms of the mortgage and the personal loan. Learn the kind of income you have and what your unavoidable expenses
are.
If you want to maximise your income by simply allowing yourself to reduce costs in certain areas of life, then you might go ahead and do so.
Whatever you do, you must endeavour to understand clearly your financial potential.
Step 2: Take Care of the Credit Report and Score
You need to check everything about your credit report and scores to gain personal loan assistance.
It is not that your personal loan won't reach you for a credit profile that has a poor credit score. You have to make a credit check to help lenders understand the behaviour of your credit details to define the status of your finances. Even if you have a poor credit score, you can make a bad credit loan instant decision in Ireland when you have updated your credit profile and shared inco
me details.
Step 3: Use a Loan Calculator and Calculate It All!
It is better to find a loan calculator online and calculate all of the interest rates INVOLVING BOTH YOUR MORTGAGE AND YOUR PERSONAL LOAN.
Find a good calculator and put your personal loan rates and mortgage rates to determine the loan repayment amounts. This will give you a clear idea of how you can control the expenses.
Step 3: Speak with a Direct Lender about the Purpose of Your Personal Loan
Why are you taking out the personal loan?
You are taking it out for a down payment on your house deposit.
If you are clear about this to your direct lender, then the organisation will offer you affordable repayment packages. There is more than one such package to choose from. You might again be advised to check the loan rates and terms with a loan calculator to find a fair deal.
- To Conclude: What to Keep in Mind
Understand that you should sign up for something that you can control.
If you cannot control expenses, then that can put even more pressure on your mortgage.
You don't want to make the entire deal risky. What you can do, though, is to 'look before you leap'.
Choosing a personal loan is undoubtedly a good idea to find more financial space to provide your down payment for a mortgage.
At least your savings account is not involved.
But try to keep in mind that you need to manage two debts.
If you are okay with managing them, then go for an unsecured loan for a mortgage down payment.
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