The consolidation of credits is increasingly a reality of the Portuguese. Whether because the monthly installments are too high or because they want to organize the financial life, this product can be a great help.
However, many people still do not know this product and do not know that the consolidation of credits allows not only to put everything together in a payment, but also to save up to 60% every month.
However, it is important to bear in mind that there are 2 types of consolidated credit:
- Consolidated loan without mortgage
- Consolidated mortgage loan.
We will explain to you the difference between the two so that you can analyze the advantages and disadvantages associated with each one.
Difference between consolidated mortgage and non-mortgage loans
It is important to consider that both options are excellent alternatives taking into account your current situation.
But, consolidated mortgage credit turns out to be a larger form of savings, compared to consolidated mortgage-free credit.
1 – Consolidated loan without mortgage
In a simple way, it is a consolidation of credits, in which the client does not provide any tangible collateral (ie, a property).
The main disadvantages lie solely in the fact that payment periods and interest rates are not so attractive.
2 – Consolidated mortgage loan
Anyone who owns a home (and consequently a home loan) knows that in times of crisis it may not be very simple to make all payments in a timely manner.
Thus, resorting to a consolidation of credits, can promote a significant monthly savings.
Therefore, when a mortgage loan is requested, what will happen is that the consumer will be giving his house as a guarantee of payment to the bank.
Consequently, the conditions that will be provided by the banking entity turn out to be much more advantageous than when the consolidation is requested without the mortgage.
It is also important to stress that by giving better guarantees to the bank, there is a greater probability of approval, since the security provided will be much higher.
However, it is necessary to consider that in case of non-compliance with the mortgage loan of the property, your house will be given as a refund to the bank. Therefore, whenever you subscribe to this type of financial products, take this issue into account.
Briefly, what we can say is that regardless of your choice, both alternatives allow you to save on the amount you currently pay.
And, this is a great way to start organizing your financial life. But then, if both allow for savings why does a secured property loan allow you to save more?
That’s what we’ll explain next.
How does consolidated mortgage credit allow for superior savings?
In simplified form, when the consumer acquires a consolidated credit, what happens is that a bank (or financial entity) buys all its debts to the creditors. In this way, it becomes the sole responsible for all credit (this is the main reason for paying only one installment instead of several).
When this bank (or entity) buys your debt, you are incurring a risk, as there may always be a possibility of default on your part.
And that is where having a mortgage on your property makes all the difference in this process. The security of the bank in lending you money will be much greater, knowing that in case you do not pay the money, they have a way of recovering it.
Below we show you 2 examples using DECO’s consolidated credit simulator.
2.1 – Example 1 – John
João lives in his parents’ house, does not have a car in his own name or any house, and receives a monthly salary of 1,000 €. There is a personal credit worth € 7,500 with a term of 4 years, and a credit card with € 2,500 with a payment of 2 years.
João can consolidate his credits without needing a guarantor (since the monthly salary he earns exceeds the minimum eligible for this subscription).
However, for the bank or financial entity that grants the consolidation of the credits, João is a risk client, because if he does not pay the credits, he does not have any good that covers the total value of the consolidation.
For João, the maximum repayment term should not exceed 6 years, and interest rates will not be very attractive (because the bank is cautious).
In this way, if you default, the bank can only (if appropriate) pawn your salary, since no mortgage or specific guarantee has been given.
2.2 – Example 2 – Filipa and Afonso
Filipa and Afonso bought the house where they currently live for 10 years at a cost of € 60,500, and the loan is still being repaid to the bank for 40 years. However, they have in force a car loan in the amount of € 10,000 with a term of 8 years, a personal loan in the amount of € 15,000 with a term of 4 years and a credit card with € 1,500 with a term of 1 year. The salary of both is approximately € 2,500.
Afonso and Filipa have applied for a consolidated mortgage loan, placing their property as collateral in the event of non-payment.
In this case, since the house is worth more than all the credits together, the bank or financial entity that acquired the previous debt, can provide a rather extended payment term (up to 10 years), and with relatively lower interest rates that in the first example, since it has the guarantee that in case of default they stay with the house as a means of payment.
In addition, the interest rates will also be relatively lower than in the first example, since it has the guarantee that in case of default the house is used as a means of payment.
How to get a consolidated mortgage loan?
Well, to get a secured mortgage loan, you first need to know what the market value of your home is.
This is important because they would know how much the house is worth at the time. If the amount owed exceeds the value of the house, it is very difficult for the bank to approve a mortgage loan.
Once you know what the market value of the property, and what amount still needs to be paid to the bank, it is time to make simulations.
And why is it important to do simulations?
To be able to perceive which is the banking entity that provides you with the best market conditions for your specific needs.
So, if you are looking for consolidated credit companies, do not hesitate to talk to us.
Our partnerships allow us to obtain a consolidated loan with the best rates in the market.