October 28, 2021
According to statistics, about six million Ukrainians would like to improve their living conditions. There are many young families who want to move to a more spacious apartment or buy their first home, but cannot do so for a very trivial reason – lack of money. And many of these families have rather good income and can afford to rent expensive residential real estate.
In this case, you can always consider buying a home in parts. So, the question of how it is better to buy an apartment – on mortgage or by instalments – is relevant for many.
It is not always clear to those involved that these two concepts have little in common. The developer offers the purchase by instalments, and the loan is offered by the banking institution. There are various legal aspects of these home purchase options, as well as fundamental differences that are worth knowing in advance. Let's try to figure it out.
What is buying an apartment by instalments?
Buying by instalments involves an interest-free loan that the buyer receives from the developer. It is not so difficult to find a mortgage from developers in Kyiv, because it is offered by many companies. The point is that the investor (here, the buyer) does not pay the entire amount for the apartment, but pays it in equal parts over a period of time. This is advantageous for the buyer because they do not have to have all the money at once, and for the developer – because they receive a stable investment in his project.
Purchase by instalments is possible only for an apartment in a new building. It is most profitable to buy an apartment at the stage of excavation. First, you can choose the most attractive option. Second, prices in the early stages of construction are much lower. And in the process of building a house, they will only grow.
In most events, the purchase is paid for up to three years. This is due to the fact that developers rarely issue instalments to the buyer for a period longer than construction. Some developers may apply the terms of long-term instalments (up to 5-10 years), when the buyer pays money for the apartment after putting the house into operation. But this is rather an exception to the rule, because such conditions are not favourable for the developer.
How to make a purchase by instalments?
Let's find out what the process of obtaining a mortgage from a developer in Kyiv looks like. First, the buyer finds a suitable apartment in the house under construction and turns to the developer, expressing a desire to buy real estate. After that, an agreement is concluded between the parties. In most cases, additional documents are not required to make a purchase by instalments, because legally and actually, the buyer becomes the owner of the house only after paying the full amount. Instalment amounts are stipulated in the contract. The buyer must make a down payment, the amount of which depends on the company's internal policy. It can be as 5-10% or 30-50% of the cost of the apartment.
If a minimum down payment is made, the buyer is less at risk, because if any problems arise they lose a smaller part of the amount he could lose. However, sometimes it is more profitable to make a large down payment, because the price of the apartment can increase and the amount of mandatory payments will increase accordingly. Only after the buyer pays the full cost of the apartment, he becomes its owner.
If we consider the question of whether it is profitable to buy an apartment by instalments, the answer is “certainly profitable”. Furthermore, often the apartment by instalments is even cheaper at excavation stage than the apartment purchased after the house has been put into operation.
It is not without reason that many Ukrainians are afraid to buy an apartment at the early stages of construction. But the risks are actually minimal, especially if you choose a reliable and time-tested company. The main features of a good developer are the following:
- Extensive experience in construction of objects in different cities of Ukraine;
- Availability of all necessary permits and perfect order with documents;
- Impeccable reputation and many positive reviews on the Internet;
- More than a dozen multi-storey residential buildings successfully put into operation.
RIEL, Real Estate Corporation, which has been building and selling houses since 2003, fully meets all these requirements. During this time, more than 50 houses in Kyiv and Lviv were put into operation.
Is it worth taking an apartment on credit?
Many banks issue a mortgage loan in Kyiv, and this is not surprising, because such a service is very popular. The difference between a loan and instalments is that in the latter case, the agreement involves three parties instead of two: the buyer, the developer and the bank, which lends the buyer money to buy real estate.
Other difference is that after the mortgage, the buyer immediately receives ownership of the apartment. And you can get a mortgage both for an already built living space, and an apartment in a house that is still under construction. Mortgages are also issued for the purchase of apartments on the secondary real estate market.
If the apartment is bought on credit, there are two parallel processes: the client concludes a loan agreement with the bank to buy a home, and a mortgage agreement, according to which the purchased apartment is a loan to the bank (but at the same time the buyer has the right to use the property). In other words, if the buyer stops paying the loan at some point, they risk being left without a purchased apartment.
You can apply for a real estate loan in Kyiv on different terms. It all depends on the bank and the client's solvency. Most mortgages are issued for a long term: from 1 to 20 years. The interest rate depends on the bank. Not so long ago, finding mortgages with less than 15% per annum was extremely difficult. But recently, an affordable housing program has been operating in Ukraine, according to which Ukrainians can get a loan to buy an apartment in a new house at just 7% per annum.
It should be borne in mind that to obtain a real estate loan in Kyiv must meet the requirements of the bank. It may be not only the age of the borrower, but also the level of family wealth. The borrower must prove his income and solvency. Under the unwritten rules, banks do not issue loans if the amount of the monthly payment exceeds 50% of the borrower's monthly income. For example, if a borrower earns UAH 20,000, they will not be given a loan, under which they are to pay more than 10,000 hryvnias per month.
Another feature of mortgage lending is that all payments are recorded in the national currency (in UAH).
Which is more profitable: mortgage lending or purchase by instalments?
It is difficult to say which of the options is more profitable, because it all depends on the situation. However, you can consider the strengths of each of the proposed lending options.
Advantages of instalments from the developer:
- Profit. It is often more profitable to buy housing for payments at the stage of excavation than to pay all the money for an apartment in an already built house at once. For this reason, many people who can not afford an apartment in a new building, first of all consider the option of instalments.
- Opportunity to pay for housing by instalments. If a family has a good income but cannot raise the necessary amount to buy a home, buying by instalments is an ideal option. All you have to do is make a small down payment and then pay a certain amount every month for a certain period. Due to this you can get your own home in a new building in the shortest possible time.
- No additional interest. Banks charge a considerable percentage (approximately 10% per year) for the lending service, even without mandatory insurance premiums and commissions. Purchases by instalments are made without interest (in some cases, the interest rate can be approximately 1.5%).
- Simple registration procedure. Getting a bank loan for a large amount is a real quest that not everyone manages to pass. It is necessary not only to meet all the requirements of a banking institution, to have a good credit history and decent income, but also to collect a whole bunch of documents. And even if a person seems to be the perfect borrower and they have quickly collected all the documents, it does not guarantee their loan approval. Instalments are much simpler, as a standard agreement is drawn up and concluded, and in most cases no additional documents are required from the buyer.
Pros of a mortgage loan:
- Fixed total cost. The loan agreement immediately fixes the amount that the borrower shall eventually pay. According to the law, the banks indicate the final cost of housing with all commissions and interest. At the same time, in the case of buying real estate for payment, there is a risk that its price will increase during the construction of the house.
- No risks. It is absolutely safe to take out a mortgage loan in Kyiv, as the bank undertakes all the obligations to inspect the developer. Most banks know which developers you can trust. Any banking institution is interested in having the mortgage object built and the money earned. Accordingly, the buyer does not have to check the developer by themselves.
- It is possible to buy a home without getting a large salary. Even if a person has almost no savings and does not have the highest salary in Ukraine, it is still possible to afford buying an apartment on a mortgage, because you can get a loan for a long time. If a loan is for 15-25 years, the amount of monthly payments is significantly reduced. But here we should realize that the longer the loan term, the greater the amount of payment.
Mortgage or instalments: features of choice
Instalment is a great option to buy an apartment in a new house, if you do not have the full amount. Such an agreement makes it possible for the buyer to save well if the property is purchased at the stage of excavation. Besides, the buyer does not pay interest and does not need to provide certificate of income, as well as other additional documents required for a bank loan.
Despite the benefits of making a purchase on instalments, mortgage lending has its important advantages. The main one is that a person immediately becomes the owner of the apartment and can move into it. Accordingly, a person will no longer have to pay for rent but pay the earned money for their own apartment instead.
Which of these two options to choose, everyone should decide for themselves. Much depends on how much you own, how long you can pay the full cost of the apartment, when you want to move into the apartment and so on. That is, when considering the question of how it is more profitable to buy an apartment – a mortgage or by instalments, you have to proceed from a specific situation and make decisions based on many factors.
