Full financing of your mortgage loan may seem like an attractive idea when you do not have a personal contribution. However, this option has some drawbacks that you should know before signing any contract. Let’s review the advantages and disadvantages of mortgages at 100%.
Although it is increasingly difficult to access these types of mortgages, it is important to know that there are still banking entities that, under special conditions, can finance your entire loan.
Before the economic crisis, the banks agreed with greater ease to realize this type of mortgage loans, nevertheless, to the day of today, the financial organizations have taken little by little this product of their range of services.
Despite this, there are still some banks willing to finance 100% of the appraised value of the property you wish to acquire.
Even there are still cases in which the bank grants a mortgage loan that includes the value of the home, operational expenses and even an extra amount for possible work that you should do.
Characteristics of 100% mortgages
Although, there are some peculiarities typical of this type of mortgage loans.
- Mortgages at 100% tend to have longer repayment terms, which can reach even 40 years.
- By having longer repayment terms, the monthly installments are usually lower, but the interest somewhat higher.
- Since most of the 100% mortgages are related to sales of flats of a bank, the mortgage appraisal is usually paid in advance.
The rest of the characteristics are usually the same as those of a traditional mortgage loan that normally covers up to 80% of the total property.
Types of mortgages 100%
Currently, it is possible to find two types of mortgages at 100%:
1. 100% mortgages to buy a free property
This type of bank loans are intended for the total financing of a property that belongs to the traditional market and that has no link with the bank. Generally, they are difficult to obtain, however, in Spain there are already some banks that are resuming their commercialization.
They are characterized by being less flexible loans than those intended for the purchase of a floor of a bank. For this reason, they usually have shorter repayment terms, a higher interest rate and a high level of linkages.
2. 100% mortgages to buy a flat from a bank
If you still do not choose the property you want to buy, perhaps this is a very good opportunity to access a 100% loan. Indeed, today, banks have a large number of properties that belong to them but you want to get rid of quickly.
If you are interested in any of the bank floors, the entity could grant you a 100% financing in addition to a series of advantages: longer repayment terms, low interest rates, etc.
Advantages of hiring a 100% mortgage
Undoubtedly, the main advantage of a mortgage loan at 100% is that you do not need to have a personal contribution when making the purchase of your home.
Indeed, if not for this type of mortgages that finance the total price of the property, customers who have not been able to save or who do not have a sufficient contribution could not access any type of mortgage loan.
In turn, it is important to remember that, in some cases, mortgages at 100% can also cover the subsequent expenses and even the amount you need to perform subsequent work. Also, in the event that the 100% bank loan is used to finance a floor that belongs to the bank, you will be able to access lower interest rates and shorter amortization periods.
Disadvantages of mortgage loans at 100%
Unfortunately, and despite 100% mortgages can be an excellent solution when you do not have how to finance part of the loan, these products have some disadvantages that you should know.
Among them are:
- In the long term, mortgages at 100% can have a high cost to the client.
- There is a risk that you end up paying more for your loan than for the value of the home in the traditional market.
- There is also the risk that, in relation to the previous point, your loan becomes a “bubble” mortgage.