When looking for the best mortgage you should consider all its costs. How are they shaped and what does the final price of the mortgage depend on?
When you buy an apartment or a single-family house, you need to consider the mode of financing it. You can, of course, use your own savings, but if they are not enough to finalize such an investment, the solution may be to use a mortgage.
Mortgage – a special-purpose loan
The basic security for repayment of a mortgage is a mortgage – a limited property right, which consists of entering in the land and mortgage register the property granting you the bank loan. If you do not pay the loan, the bank has the right to sell the property and settle the outstanding loan.
The mortgage is paid out once or in installments, called loan tranches. The terms of the mortgage, which you will negotiate in the bank, will determine what its final cost will be. Only people whose creditworthiness is high enough will receive a mortgage.
Before you sign the loan agreement with the bank, you will need to document your own contribution as well as your creditworthiness. The bank may ask you for a personal account statement (in 3 or even 6 months). In addition, the bank will check your details in the Credit Information Bureau. Bad credit history means that the mortgage will most likely not be granted.
What is credit standing?
You can get a mortgage, as long as you have the ability to pay the debt, including accrued interest and other charges. The bank will ask you to provide documents that confirm all your income.
Mortgage and own contribution
To get a mortgage, you must have your own contribution today. The days when banks granted 110% of loans are irrevocably gone.
Today, the own contribution required by banks for mortgage loans is 20 percent. the value of the property being bought, with 10 percentage points (half of the own contribution) can be replaced by mortgage insurance – low own contribution insurance.
Mortgage installment – types of installments
Each mortgage installment consists of two parts:
- the capital part, which reflects exactly the part that the borrower borrowed from the bank – its repayment results in a successive decrease in the amount of the debt balance,
- interest part, which is the bank’s remuneration for the loan granted.
The amount of interest results directly from the loan interest, which is the sum of the bank’s margin and the reference rate, depending on the WIBOR rate. The mortgage loan is usually granted with a variable interest rate, i.e. the amount of installments may change during the loan period.
You can pay your mortgage in installments:
The choice between mortgage repayment in equal and decreasing installments is very important and will clearly affect the cost of the loan. Differences in the total cost are often calculated in thousands of zlotys. Remember, however, that decreasing installments will be a great burden to your household budget at the very beginning of paying off.
An equal mortgage installment is also known as an annuity or average installment. It is most often chosen by Polish borrowers because:
- its amount is known – the borrower is aware of how it will be shaped during the loan period,
- is definitely lower in the first loan period than the decreasing installment,
- makes it easy to take a loan,
- is less risky
- introduces an order to managing your home budget.
The “fixed installment” is called so conventionally, because a fixed amount of installments can only be guaranteed by a fixed WIBOR rate. This changes over time, which increases or decreases the installment amount.
In the beginning, the greater part of the equal installment is interesting, which is later equated with the interesting part, which is calculated on the outstanding loan amount. The capital for each installment is added so that the installment remains the same.