A mortgage with a solid guarantee Financial conditions for granting mortgage loans Choosing the cheapest mortgage
Loans allow you to finance any or strictly specified purposes in your loan agreements. These may include the purchase of a residential property or construction or renovation of a house. In such cases, clients most often take out mortgage loans at banks.
In general, they are high-value financial liabilities that have been paid back over decades. For this reason, before signing the proper loan agreement, it is worth spending time so that we can choose the cheapest possible mortgage at the moment. Where should we look for such offers?
A mortgage with a solid guarantee
A definition of a mortgage can be found in the Act of 23 March 2017 on mortgage loans and on the supervision of mortgage brokers and agents. The legislator has clarified what should be understood as a mortgage contract already in the third article of this Act.
He specified that this is a contract under which, by playing the role of a lender, the bank grants the consumer a loan or a promise to grant a loan with a mortgage or other law related to residential property. Each mortgage is granted for the purpose of financing non-business or farming activities: acquisition or maintenance:
- ownership rights to a residential building or a dwelling constituting a separate property, including their construction or reconstruction;
- cooperative ownership right to the premises;
- ownership rights to land real estate or parts thereof;
- participation in the joint ownership of a residential building or a dwelling constituting a separate real estate or a share in a real estate.
The mortgage is secured by a mortgage established on a residential property, i.e. limited by the right in rem, subject to entry in the land and mortgage register of a given real estate in favor of the bank.
For this reason, banks are more likely to grant mortgage loans with a lower interest rate than in the case of unsecured cash loans.
Financial conditions for granting mortgage loans
The most important thing for a potential borrower who is looking for the cheapest possible mortgage offer will be where the cheapest loan can be obtained. Mortgage costs are divided into interest and non-interest costs.
In the first case, we are dealing with interest on the loan, calculated according to the nominal interest rate per annum agreed with the bank. This is the remuneration charged by the bank for granting a mortgage.
Credit interest consists of two parts:
- interest rate
- bank margin.
The interest rate is the rate at which banks borrow money on the interbank market. In the case of mortgage loans granted in the Polish currency, the GFIC rate is used at the right time (1M, 3M or 6M, etc.) to calculate the nominal interest rate.
On the other hand, the mentioned bank margin is the bank’s remuneration for the credit granted and its value is subject to negotiations between the lender and the borrower.
Interest expense is only one of the borrower’s costs. You should be aware that a mortgage also has non-interest costs. They include, among others:
- preparation fee;
- commission for granting a loan;
- premiums for compulsory insurance, for example, bridging insurance, low own contribution insurance;
- other insurance premiums – borrower’s life insurance, real estate insurance, borrower’s insurance against job loss;
- other fees and commissions.
Choosing the cheapest mortgage
A potential borrower who has plans to take out a mortgage can visit banks and look for the best-personalized offer for them. He can also reach for a loan comparison service or use a mortgage calculator, thanks to which he will find out which bank has the best offer for him at a given time.
When comparing loan proposals, we should take into account the total loan costs or the APRC rate – the actual annual mortgage rate, reflecting all the costs that the borrower will have to incur if he decides to take out the loan.