Before you decide to take out a mortgage it is worth to learn its parameters and finally, with a loan, we will have to live for at least several dozen years. When receiving a mortgage loan simulation from a credit advisor, it is worth paying special attention to several important factors that will determine whether the selected loan will meet your expectations.
First of all, the simulation must contain all the information so that you are fully aware of the costs that you will face. On this basis, you or your credit adviser will be able to analyze all the costs and differences in individual banks to ultimately choose the one that is the most advantageous. So what should a mortgage simulation contain?
Interest on the loan
The key criterion for making the right mortgage choice is its price and this is influenced by a factor such as interest. Mortgage loans bear interest at a variable interest rate, which consists of the jabank reference rate – a loan in PLN.
The bank’s margin is added to the interest rate, which in total is the interest rate of the given mortgage loan. Each reference rate is a market size and the factors affecting the rate are, among others, decisions of central banks, ie NBP on raising or lowering interest rates, economic situation, inflation expectations, etc.
As for the margins and its amount, it in turn depends mainly on the amount of credit granted and the amount of own contribution held by the borrower. The rule is that the higher the loan amount, the lower the margin is usually lower.
Mortgage loans by banks are granted for various periods, although the main criterion which is guided by the age of the main borrower who is not over 70 years of age, are banks that allow granting credit up to 75 – only the question of who will pay the loan to such age .. – they are often subject to additional costs, which does not affect their attractiveness.
When comparing mortgage loan simulation to offers from other banks, you should take the same loan period. Comparing the prepared simulation with different periods does not just make sense, because a higher interest-bearing loan granted for a longer period may have a lower installment than a loan with a lower interest rate for a shorter loan period. When it comes to borrowers at an early age, there should be no problems, but even with older people, the age may limit the total loan period in a given bank for which it may be granted and this also affects the selection of the final offer. Sometimes, these people simply have a smaller choice or use the offer of banks, which allow to provide up to 75 years of age, on less favorable terms, to get a loan at all, because it limits their creditworthiness.
The bank’s margin in the vast majority of banks is determined on the basis of the LTV ratio, which determines the amount of the loan in relation to the value of the collateral – the value of the real estate. The lower the LTV ratio, the more favorable the mortgage terms.
The amount of the base rate
Mortgage loan simulation prepared by a mortgage advisor should include the jabank rate, which was included in the calculation for the day. Its amount is set differently by individual banks.
If we know what the amount of the margin is, we can deduct it from the given interest rate, to set the jabank base rate from a given calculation, to compare its heights and verify whether it was valid as of the date of the simulation being prepared. This is very important and affects the reliability of the information provided to the potential borrower. Taking into account the current jabank rate in the calculation affects the monthly amount of the loan installment and it may happen that a bank that offers better lower margins is uncompetitive in relation to another simulation presented from another bank.
In the past, when we had higher interest rates on the market, there was a significant difference between the rate, jabank3M and jabank6M, so you could wonder what to choose. Each of them has its pros and cons.
When interest rates are lowered by the Monetary Policy Council (Monetary Policy Council) interest rates on loans are falling – the monthly loan installments are decreasing. Thus, people who have a mortgage with an interest rate based on the jabank3M rate have a better chance of feeling a faster reduction in the installment as opposed to people who received a loan with an interest rate based on the jabank6M rate. If the interest rate increases in a better situation, there are borrowers who have a loan based on jabank6M. Currently, these differences are quite small so it does not affect the choice of the bank’s offer.
Commissions for granting a loan
It happens that in advertising materials, banks praise promotional offers with zero commission. In such cases, it is necessary to verify the conditions, it may be so that in exchange for giving up a one-off commission for granting the loan, we must purchase compulsory life insurance or unemployment. The cost of such insurance will have to be borne in advance for the entire period of several months or it will be monthly premiums that we will not avoid.
As a result, it may turn out that a zero-commission loan may be more expensive than one at which you have to pay it. If someone tells you that after a period of 10 months you can give up such insurance – it must be supported by facts and specifically the provisions in the contract. They can be words without coverage so that you can decide on a given offer … very often, the provisions of the loan agreement provide for cancellation of insurance coverage.
The consequence of this may be an increase in the loan margin … the same applies to all other additional products, such as a mandatory settlement account – ROR or credit card, which constitute additional income for the bank in addition to the margin or commission.
The insurance cost of a low own contribution
The requirement to have a 20% own contribution when using a mortgage for a given investment becomes a standard. In a situation where the borrower does not have a full contribution, then it is his duty to insure the missing part, usually for a period of 3 years. After this date, the bank re-checks the amount of the loan and its relation to the value of the LTV property. If it is higher than 80 percent, then you will need to continue to insure the missing amount.
When choosing a bank, check how much the insurance costs, and what obligations and fees bind us after 3 years, if you fail to get the required own contribution. It is also worth asking if a given bank returns part of the insurance premium, if we overpay the loan and the required contribution we will get in a shorter period. Why is this important? Because several banks, when prolonging insurance, they collect the original premium – such as when starting the loan, and not the premium from the actually missing amount.
The cost of loan insurance up to the moment of establishing the mortgage – bridging insurance
Until the provision of a copy of the Land and Mortgage Register with the mortgage entry for the bank, the borrower is obliged to pay an additional insurance called bridging insurance. There are banks that use an increased margin instead of insurance. However, from the point of the borrower, the method of calculating this fee is material, whether it depends on the amount of credit granted or on the amount of current debt.
This is particularly important especially when buying real estate on the primary market from a developer, where the entry can be expected even a dozen or so months adding to the construction period of the house or housing estate in which there is a dwelling, which we purchase. The differences resulting from the method of calculating the fee may be really big. An application for entry of a mortgage can only be made after the sale purchase agreement and this can take place only after the building has been put into use.
Fee for early repayment of a mortgage
In a situation where we intend to repay a loan in the near future, or we intend to make partial, additional repayments of capital, it is worth checking the level of commission related to such an operation. If the bank declares that it does not charge a commission for early repayment of the loan, check whether this is reflected in the form of relevant provisions in the loan agreement. In the case where it is recorded in the Table of Fees and Commissions, it must be taken into account that it may change. At the time of signing the loan agreement, the bank does not charge such a fee in accordance with the table, it does not mean that in the future it will not change its opinion and the fee will not be charged.
The fee for property valuation
In order to grant a mortgage, the bank must first assess the value of the real estate being the object of collateral granted for the loan. It should be ensured that the bank charges a fee for the valuation or is based on an internal, free quote prepared on the basis of the bank employee’s photos.
Most often, however, the bank requires an external valuation performed by an authorized appraiser, or it orders the valuation itself in the form of an appraisal report and ultimately transfers it to the borrower. If it is necessary to make an appraisal report, it is worth knowing the cost and the moment of paying the fee before granting during the application for a mortgage or before signing the loan agreement.
It is also worth considering the order to carry out an appraisal report – in this way, we can reduce its cost individually by negotiating the cost of it with the appraiser. Before you do that, however, it is worth asking whether the bank accepts external valuations, some banks accept valuations only from appraisers from their internally established list.
Cross-Sell – additional products = additional cost
Banks have specialized departments in the area of shaping offers and creating new solutions in the form of commissions and insurance in an increasingly new edition. Therefore, and more often we encounter the situation that if we want to get better credit terms, we need to set up an account in a bank or decide on a credit card. In some banks, running an account is for free, while others charge a dozen or so zlotys a month.
There was also a situation where the account was for PLN 0 and after a certain period a monthly fee of PLN 25 was introduced. Therefore, it is necessary to check exactly what these costs are and consider relatively whether it pays off. The more so that after the introduction of the banking tax, the banks will try to recover the tax costs on the fees that will be placed in their TOiP (Table of Fees and Commissions)
When we break down all factors affecting costs, it may turn out that cheaper loans come out more expensive.
Additional products that we can meet are:
- insurance against job loss
- health insurance
- insurance against property impairment
All these additional fees significantly increase the cost of the loan and ultimately decide on the choice of the bank’s offer.
In order to properly assess two offers, it is not enough to compare the interest rate, you have to sum up all monthly fees in order to make the right decision. Certainly, the proper credit advisor and his experience will be useful in this area, so that nothing escapes our attention.