The mortgage without advance could be a very convenient solution for those who are short of liquidity, but it is necessary to investigate what is meant by this payment formula. As is known, the loan is typically a loan aimed at supporting the purchase of a property, often it is a loan for the first home, through the provision of a loan by a bank which, in turn, asks for certain guarantees and a certain interest rate, fixed or variable.
This loan can cover up to 80% of the value of the property: this means that the remaining 20% must be provided directly by the borrower
This amount, equal to 1/5 of the value of the property you intend to buy, is commonly considered an advance, but it would be preferable to define it as a down payment : in fact, it is not a real advance, but a sum that shows to the bank the availability of liquidity by the applicant. in fact, it is a guarantee on the borrower’s ability to repay the disbursed capital.
However, this sum could constitute a barrier to the provision of the loan, if the applicant does not have a similar amount available at that particular time. To prevent this from becoming an excessive obstacle to access to credit, some banks have begun to propose a different financing solution, called a 100% mortgage . This form of loan guarantees coverage of the entire value of the property to be purchased, without the request of a 20% advance by the applicant. In the face of this opening by the bank, the customer will be asked for a higher interest rate.
The reasons for this rate increase are different
First of all, the bank, committing itself to provide a higher amount without the guarantee of the advance, runs a greater risk and therefore requires that it be remunerated with a higher interest. Furthermore, 100% mortgages require the signing of a surety insurance policy , which usually covers just that 20% that was not provided through the deposit. This increase will be counted by the APR, the annual percentage rate, which includes all the ancillary costs necessary for the opening of the loan.
All these conditions certainly make the mortgage more advantageous without an advance, but at the same time they ensure that the bank’s controls are more careful than they are normally already: for this reason, being able to present a permanent employment contract or maybe a double family income could be an advantage for the positive closure of the practice.