A mortgage loan and a building society loan are financial products related to the acquisition of real estate. Apartments, houses and building plots are interesting investment opportunities. If you dream of owning your own home and do not have enough money, there are basically three options available to you, which we will discuss in more detail in the following lines.
- Mortgage loan
- Bridging loan
- Proper building society loan
With the help of these loan products, you can finance more than just the purchase of a property. Many other solutions are also available in the form of reconstruction and modernisation. The complete construction of the family home and the property settlement of the spouses is a chapter in itself.
Mortgage availability is getting worse
First, let's look at property financing a little more generally. The mortgage boom is obviously tied to a timeline. Just look at the previous years and the development of property prices, which are also linked to the development of interest rates and the interest of potential clients. For example, we can look at historical data related to previous years in the Czech Republic.
| Year | Interest rate |
| 2005 | 4,25 % |
| 2009 | 5,56 % |
| 2016 | 2,13 % |
| 2022 | 4,88 % |
A loan from a building society usually competes with a mortgage loan in terms of interest rate. You certainly cannot expect big differences. These are more to do with the products themselves. Each of them has certain advantages and disadvantages.
Mortgage loan from a bank
In this article, we focus on a mortgage loan provided by a banking institution. Of course, there are also non-bank companies on the market that offer higher amounts of money. However, these are usually associated with high interest rates and unfavourable repayment terms.
The building society loan is provided by savings banks and is one of the dominant products in their portfolio.
Barbara S., bank clerk.
The bridging loan mentioned in the introduction to this article is closely linked to a regular building society loan. It therefore falls within the product range of savings banks. But more about that in the following lines.
Mortgage loan and everything about it
A mortgage loan probably does not need to be introduced in detail. However, for those less familiar, we have a short definition. It is a long-term type of loan that involves a mortgage on a property. Usually it is the property being financed, but third party properties are no exception.
- The value of the property must match the mortgage amount
- Several different types of property can be guaranteed
- In the case of third parties, their consent is required
If someone else will guarantee the property you are buying, the liabilities associated with your insolvency are transferred to him. This means that if you don't pay your mortgage loan on time, it is the third party that can get into trouble.
Benefits of a mortgage loan
Let's first focus on what pros you will be surprised by a mortgage loan. There are more than enough positive features of this loan product. If we start from the very beginning, it is essentially one of the easiest and most affordable loans suitable for acquiring any type of property.
| Subject | Value |
| Investment property | Yes |
| Business property | Yes |
| Property in your ownership | Yes |
| Fixation time | One to several years |
As such, the mortgage loan is primarily intended for the purchase of family and recreational properties. For the acquisition of business properties, a slightly modified mortgage should be chosen. As far as the fixing period is concerned, it represents a security in the form of a fixed interest rate for the duration of its validity. This can last for one year, three years, five years or more.
Disadvantages of a mortgage
What is advantageous for one may not be advantageous for the other. Therefore, you should also know the negatives that accompany a mortgage loan. For example, you have to take into account a credit commitment for a relatively long period of time. It is most often between twenty and thirty years old. Be prepared for the administrative process to be a bit of a long haul.
To get a mortgage loan, you must have saved a corresponding amount. This is usually around 20 % of the value of the property.
Olivia S., bank clerk.
Depending on your choice of mortgage loan, you also have to take into account the fees associated with this product. At the same time, be aware that not every property is suitable for a mortgage.
Building Savings Loan
And what is the biggest competitor to a mortgage loan? It is the building society loan. As its name suggests, it is a building society loan from which you can subsequently take out the loan you want. However, you must have saved an appropriate amount of money. At the same time, you must have been saving for some time.
- Savings period of at least 2 years
- Amount saved 30 to 60 %
- Bridging loan
It is the bridging loan that can be obtained when you do not qualify for a regular building society loan on the basis of the conditions. However, there are some disadvantages associated with it, which will be discussed in the following chapters.
Benefits of a building society loan
Let's start again with the positive, what a building society loan offers. In some areas, it even surpasses a mortgage loan. For example, for lower amounts, you can avoid having to guarantee the property or find a guarantor. For higher amounts, of course, you have to guarantee the same as for a mortgage.
| Subject | Value |
| Interest rate | Same for the entire maturity period |
| Maturity period | Up to 30 years |
| Savings | State aid and interest rates |
| Alternative | Bridging loan |
Mention should also be made of the fact that funds set aside and appreciated through building savings are counted when applying for a mortgage loan. The two products are therefore somewhat intertwined in some areas.
Why choose a mortgage loan instead?
And now the negative it offers building society loan. It is generally associated with higher interest rates, which is doubly true for a bridging loan. In its case, you essentially pay interest until you meet the terms of the regular loan.
Under a building savings loan, clients are granted lower amounts than under a mortgage.
Madison L., bank clerk.
In addition, some savings banks force you to obtain a proper loan from a building society by concluding a contract for another product of the society. You must also take into account that this is a special purpose loan, where you need to prove how you have financed the funds.
Mortgage loan or building society loan?
A question that probably cannot be answered unequivocally. Each of us has slightly different needs in terms of property investment. In addition, many of us have different living and financial circumstances. A mortgage loan will be suitable for some, while a proper loan from a building society will suit others..
Questions and Answers
If you are still not sure which loan product is right for you for financing your own property, read the following lines. The FAQs may tell you what you need to know and make your decision easier.
You can use it to finance the purchase of land, the construction of a house, the purchase of a property, but also for reconstruction or to settle inheritance proceedings.
You set a target amount when you sign the contract. Then you must save at least 30 to 50 %. The remaining amount will be lent to you by the savings bank in the form of a regular loan.
Yes, there may be mortgage arrangement fees. An appraisal of the property is not an exception. Banks also require you to take out default insurance.
Yes, you have that option. However, in the case of a mortgage loan, it is usually worth it at the end of the fixing period. Otherwise, you may pay extra penalty fees.
Yes, a mortgage loan and a building society loan can serve these purposes. But the original loans must be for housing finance.
Mortgage loan and home ownership
Whether you opt for a mortgage or a building society loan, try not to nod at the first offer. There are more than enough providers of these services. It is therefore worthwhile compare individual products and choose the most suitable and advantageous one for your needs. The cost of mortgages can vary quite a lot.
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