A mortgage is a product we take today to meet the housing needs of our ‘tomorrow’. We advise you on how to prepare for this life investment.
First of all, when going to a bank or financial advisor for a home loan, we should familiarize ourselves with the most important terms accompanying the loan. Therefore, let’s start by answering the question what a mortgage is in general. As the name suggests, it is a long-term financial liability towards a bank secured by a real estate mortgage. The bank establishes a limited property right in the event that the borrower fails to repay the bank’s debt. A mortgage is a complex product that builds various components, such as margin, commission, LTV, WIBOR. Michał Krajkowski from the Polonius Credit House chose and explained the fifteen most important concepts that every future borrower should know.
Annex – this is a document signed by the bank and the borrower if any changes are made to the mortgage contract, e.g. those related to the margin, loan period, disconnection of one of the persons from the loan.
Assignment – transfer of rights from a contract, e.g. insurance, to the bank. This means that in the event of damage (e.g. flat fire), the bank decides how to use the compensation.
BIK and BIG – Credit Information Bureau and Economic Information Bureau – registers in which our credit history is recorded. This is where the banks check whether we regulate loans on time and whether I am in arrears, e.g. in paying for a mobile subscription.
Mortgage – the basic legal form of mortgage collateral established between the creditor and the debtor. The mortgage is entered in the land and mortgage register of the premises or land.
Grace period – suspension period for the loan taken out specified in the loan agreement (given in months).
Margin – one part of the loan interest rate, unchanged throughout the loan period, along with the reference rate is the interest rate on the loan.
LTV – Loan to Value, an indicator used to determine the amount of credit granted in relation to the amount of collateral for repayment of this loan. The credit margin depends on the LTV level. The higher the LTV, the higher the interest rate on the loan. For loans granted in 2014, LTV may not be higher than 95%.
Penal interest – interest accrued on debt that has already been repaid. The level of criminal interest rate cannot currently exceed 16%.
Credit promise – a document confirming that the bank undertakes to grant a loan to an applicant who has met the conditions set out in the promise.
Commission – a one-time cost borne by the borrower for taking out a mortgage. Calculated from the amount of the liability incurred.
Currency conversion – a change in the currency in which the loan is granted.
Decreasing installment – its amount decreases with the end of the loan period – the capital part remains unchanged, but the interest part decreases.
Equal installment – its amount is unchanged throughout the loan period. It consists of a growing capital part and a decreasing interest part.
Reference rate – market interest rate on which the interest on the loan depends. Along with its change, the interest rate will also change during the repayment of the liability. For loans in USD, the reference rate is Wibor.
Own contribution – funds accumulated by the borrower that he engages in the investment. Own contribution and credit must be sufficient to cover the investment costs. Since 2014, the minimum required own contribution is 5%.
You must have the capacity and own contribution
The first stage of applying for a loan is checking the so-called creditworthiness, i.e. the ability to regularly repay the loan and other charges that are associated with it, e.g. insurance. It is the creditworthiness that determines the maximum amount of mortgage that a borrower can take and is calculated on the basis of his monthly income and expenses. Of course, ordering finances, including closing credit lines in current accounts, and resignation from credit cards are one of the ways to increase payment options, i.e. for a higher mortgage.
Own contribution is the second indicator of applying for a housing loan. From this year, in accordance with the current recommendation of the Polish Financial Supervision Authority, each person must contribute a minimum of 5% of own funds calculated from the purchase price of the property. This means that when buying a flat for $ 300,000, we must have at least $ 15,000 to be able to apply for a housing loan for the remaining amount.
This is worth knowing
When applying for bank financing, it’s worth knowing that;
- banks often help finance additional fees related to the loan (e.g. commission, insurance), but they can be added to the loan only if the total debt does not exceed 95% of the property value.
- spouses with an intercurrency agreement do not have to jointly apply for a loan,
- in the event of divorce, the liability for the loan invariably rests on both spouses until the annex is signed and one of the persons is excluded from the loan,
- repaying the loan before the deadline, we give back only capital, never future interest,
- when selling a property encumbered with credit, we must obtain a certificate from the bank about the current debt – then part of the funds from the buyer will go directly to repay our loan,
- in case of problems with loan repayment, you can ask the bank for a temporary suspension of paying installments, or apply for an extension of the loan period,
- 1-3% – this may be the fee for early repayment – it is usually charged for 3-5 years after the loan is disbursed,
- 12 months – income for the minimum period must be shown by the entrepreneur applying for a loan,
- 3 months – this is enough for a person with an employment contract to prove income.