Mortgage loan or credit

Although the purpose of a mortgage loan and a mortgage credit facility is to obtain financing, there are important differences between the two. With a loan you receive the money at the outset, whereas with a credit facility you can draw down money up to an approved amount according to certain conditions.

Loans involve a bank granting you a fixed amount of capital that you undertake to repay in regular instalments over an agreed term. Therefore, both parties have a clear understanding of the total cost of the operation, the amount of interest payable and the life of the loan.

When it comes to mortgage credit facilities, your bank sets a maximum amount which it is willing to lend and you can make use of the full amount or not during a definite or indefinite period of time.

Example of a mortgage credit facility:

The bank allows you to draw down up to €120,000. In year 6 of the life of the credit facility, after you have already repaid €5,000 of capital, you have new financial needs, such as buying a car or refurbishing your home. Your credit facility agreement allows you to draw down again the €5,000 that you have already repaid subject to the terms and conditions on subsequent drawdowns.

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