Currently, housing prices, especially in the largest cities in Poland, are rising like crazy. Increases of several percent per year are no longer surprising, and are even expected by people planning to buy an apartment in the near future. More and more young people are choosing to buy an apartment. Most of them want to become independent from their parents. However, many of them do not yet have enough funds to buy an apartment for cash. Then it remains for them either to wait until they save enough funds to buy an apartment from the secondary or primary market or to find an alternative source of financing. One of the most common sources of housing financing is a mortgage in the bank.
What is the mortgage?
The main assumption is that the borrower pays part of the amount he has saved for a given purpose – in this case, for the purchase of an apartment. We call it our own contribution. Then the bank proceeds to calculate the creditworthiness of the person or several people, to what extent under the given conditions they can take a loan. Usually it is from several hundred thousand to amounts exceeding even one million dollars. Creditworthiness is calculated on the basis of monthly earnings, current cost of living, number of persons and past and present credit obligations of persons taking credit. After determining the capacity, the bank begins to present the financial conditions for borrowers – in terms of margins, commissions, installments, their degree – whether they will be fixed or decreasing, or maybe increasing.
There are several methods to lower the margin and commission paid to the bank for granting a loan. I will tell about all of them.
Increase in the amount of own contribution
The maximum credit standing increases and the interest paid to the bank decreases. Most often, young people have only the minimum funds required by the bank – in the amount of 10% of the total value of the loan. With an increase in own contribution to 20% you can get much better credit conditions than with a 10% contribution. Interest can decrease by up to 50%. Shortening the loan period is another alternative method. By default, people take out a mortgage for a maximum term of 30 years. Shortening this period to 25 or 20 years will greatly reduce our liabilities to the bank. It is true that monthly installments will increase by a few to several percent, but the apartment will become your property faster by several years and the amount of interest payable will be definitely less than with the option of 30-year loan financing.
To sum up – a mortgage is the most popular alternative financing method for purchasing property for housing purposes. To obtain such a loan, you must have adequate creditworthiness, which is calculated on the basis of income and current liabilities. In order to reduce the interest paid to the bank on the loan, it is good to have a larger own contribution or reduce the number of loan years.