What is a mortgage?
OThe mortgage is a banking product. The liability is secured by the property purchased. According to BIK data, over 2 million mortgages are repaid in Poland. The total amount to be settled is PLN 397.2 billion. The installment amount is influenced by: interest rate and amount of own contribution. What does the profile of an ideal borrower look like? We invite you to read!
What is a mortgage?
With the increase in gross wages, the demand for real estate purchases increases. Low interest rates are also tempting investors to buy flats for rent. A popular means of financing housing is a mortgage. It is worth noting that the statistical Malatski needs 142 days to earn 12 installments.
The mortgage is a banking product. A characteristic feature is the security in the form of a mortgage. When the borrower ceases to repay the bank, he has the right to take over the property.
A contract must be signed between the parties (the bank) and the borrower (a natural or legal person). Pursuant to the document, the bank undertakes to transfer funds – in a fixed currency, for a specific purpose. On the other hand, the borrower undertakes to return the money in installments – including commissions and interest.
The distribution of the mortgage by the purpose of the loan
The mortgage must have a clearly defined purpose. This financial product is not always intended for the purchase of an apartment. The money received can be used for renovation, purchase of plots, etc.
Types of mortgage due to the purpose of the loan
- classic mortgage – the purpose of the loan is to buy an apartment. Money is transferred to the seller’s account;
- construction and mortgage loan – the money is paid out in parts. The loan is granted when the property is under construction (e.g. by a developer);
- consolidation loan – the product combines other loans taken together. The borrower pays all banking obligations in one installment;
- Refinancing loan – the borrower may use this option if he wants to transfer the mortgage to another bank.
There is also a breakdown into loans
- in zlotys;
- in foreign currency.
Mortgage costs – what elements make up the price
There are many factors that affect the cost of a mortgage. The price depends on:
- interest – its amount depends on the bank’s policy and on BIWOR (for loans in PLN), ROBIL (for loans in CHF). The interest rate can be fixed or variable;
- Preparation fees and commissions – usually collected at the beginning of the contract. Their amount is affected by the amount of credit granted. They can also play an important role;
- insurance premium – the mortgage is usually accompanied by insurance. Especially before establishing a mortgage. The premium is included in the loan installment;
- own contribution – as the own contribution increases, the loan amount decreases, and thus the installment amount decreases.
In what currency should I take out a mortgage?
Until July 22, 2017, there were no regulations that would govern the currency in which a mortgage could be taken. The sudden increase in the franc against the zloty meant that borrowers who took out a loan in the Swiss currency repaid much more than they actually borrowed. The bad situation of franchisees forced the legislator to determine the currency of mortgage loans from above.
The Mortgage Act says that the borrower can enter into a liability in the currency in which he receives the salary or holds the majority of the savings. The provision basically forces you to take out a mortgage in PLN.
Persons who have a financial obligation in a foreign currency, in order to reduce the installment, should repay the obligation in the currency in which they contracted. A high spread (the difference between buying and selling currency) increases the installment. For this reason, an informed borrower exchanges on his own.
How to get a loan for an apartment? The basic condition – own contribution
According to the “Recommendation S” of the Polish Financial Supervision Authority, the mortgage amount cannot be higher than 85 percent. property values. The remaining part must be financed from the borrower’s money, i.e. own contribution.
Obtaining a loan without providing private funds is possible in the event of collateral on another property or use of the Flat for Youth program.
The second condition is the amount of remuneration charged. The bank takes into account all borrower’s monthly expenses. In this case, the number of household members is important. Paradoxically, in some situations singles have a better chance of getting a loan than marriages with children. Other financial obligations are also very important. When assessing creditworthiness, the bank will pay attention even to credit cards.
Profile of an ideal candidate to take a mortgage:
- consumer with savings – potential own contribution;
- high earner. Employed under an employment contract for an indefinite period;
- the borrower should be married, preferably without children;
- person who does not pay other financial obligations.
- Pros and cons of a mortgage
A mortgage is a popular form of real estate financing. According to BIK data, 2 177 238 housing loans are repaid in Poland.
Pros of this banking product
- high loan amount;
- relatively low installment;
- long loan period.
However, despite its popularity, this product is not without its flaws.
- complicated and time-consuming application procedure;
- establishment of a mortgage.
Can a cash loan be an alternative to a mortgage?
An alternative to a mortgage can be a cash loan. In this case, you do not need to specify the purpose for which the commitment is made. Therefore, part of the financial resources can be used in other ways, e.g. for renovation of an apartment. The application procedure is also much easier. Moreover, the bank does not require collateral in the form of a mortgage.
It should be borne in mind that the cash loan installment is much higher than in the case of a mortgage loan. The loan period is also short. In most cases, the repayment period does not exceed 10 years.