Without a mortgage, many of us could not fulfill our dream of having our own four corners. Real estate is very expensive, so it is almost impossible to buy it for cash. That is why you need to support yourself with a mortgage. What is important when you want to choose it?
- Mortgage – characteristics
- Loan for a flat – own contribution
- Home loan – interest rate
- Equal or decreasing installment?
Mortgage – characteristics
First of all, it is important to realize that a mortgage is an intentional commitment. Thanks to it, it is possible to buy a house or flat, possibly also renovation or modernization. The key is security. Until the repayment of the liability, the bank imposes a mortgage on the property. How to understand? Until you pay off your mortgage, you don’t own the place fully. In this way, the bank protects itself against customer repayment problems.
Loan for a flat – own contribution
It is worth knowing that due to the fact that formerly banks provided support for 100% of the value of the property, and even more if the loan was also to be used for renovation. This meant that almost anyone could apply for financial support for the purchase of the property. Unfortunately, this has contributed to many repayment problems. The lack of participation in the loan was also of great importance in determining the conditions. They were not very profitable for borrowers.
That is why the Polish Financial Supervision Authority issued Recommendation S. According to it, to be able to take a mortgage, you must accumulate own contribution. It should be 20% of the property value. This means that if you take out a loan for a flat worth USD 250,000, you must raise USD 50,000 of your own contribution. In the case of a house worth USD 500,000, the self-made part is already USD 100,000.
Of course there is a way and it. The banks, realizing that collecting such an amount is relatively difficult, agree to make a lower contribution – amounting to 10% of the property value. However, this still requires additional security in the form of low contribution insurance.
If you want to buy an apartment and think about whether it is better to give a larger contribution or leave money for renovation / finishing, it’s worth knowing that banks do not have one offer for all customers. It depends on many factors. Having a high own contribution, you can successfully negotiate better conditions. For some, this means no commission, for others – a lower margin. So sometimes it is better to hold back a bit, wait and apply for a housing loan when you have a high own contribution.
Home loan – interest rate
Every loan, regardless of whether it is for the purchase of real estate, for a car or for any purpose, has an interest rate. What is this? This is the cost of the loan, expressed as a percentage. It is added in appropriate proportions to all loan installments. The loan interest rate consists of the margin, i.e. the bank’s profit and the reference rate – this is the interest rate of a given transaction determined by the market.
Its amount is influenced by all market mechanisms, and above all the activities of the Monetary Policy Council. In contrast, the margin, unlike the base rate, has no fixed and market-specific value. The bank decides about it. The higher the interest rate, the less favorable an offer may be. It is worth knowing that while the reference rate cannot be moved, the amount of the margin can be negotiated with the bank. However, most often when you have a high own contribution and good credit standing.
Equal or decreasing installment?
Mortgages are financial instruments that allow you to choose what type of installments you want to pay. There are two possibilities. You can choose equal or decreasing installments. The first liabilities throughout the repayment period are the same. This allows you to plan your budget, but also makes you have much better creditworthiness. The type of installments is included in its calculation.
Decreasing installments allow for a successive reduction of the monthly installment amount. This is because, from the very beginning, not only interest, but also capital repays itself. Thanks to this, interest is calculated from the decreasing amount. However, this option significantly reduces your credit standing. However, it is a great solution if you know that you will want to pay off your debt sooner.