Loan vs. Mortgage

What is the difference between a mortgage and a loan? Which is the cheaper form of financing in Switzerland?

Greetings.

The term "mortgage" refers to a specific action related to getting a loan secured by certain types of property (typically real estate). When you mortgage your home, you are offering your home as collateral in order to secure a loan.

Today the word "mortgage" is often used, somewhat confusingly, to refer to a home loan secured by a mortgaged property. In this sense, a mortgage is just another word for a secured home loan which can only be used for the purchase or renovation of a property, with the property itself acting as collateral. Normally, only part of a home loan has to be repaid within a predetermnined time-frame (the "mortgage term"), while the remaining debt can be serviced without amortization.

Personal loans, on the other hand, are not normally designated for a specific purpose. Typically, these loans must be repaid in full within a designated time frame known as the "loan term". Recently, many Swiss lenders have begun to offer cheaper personal loans to home owners, regardless of how loans are used.

In the current low-interest environment, interest rates for mortgages have become much lower than interest rates for personal loans. If you need money to buy or renovate a property, mortgaging the property works out much cheaper than getting a personal loan.

Best regards from Moneyguru

More on this topic:
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Swiss personal loan comparison
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