Everyone would like to pay for the mortgage as little as possible. Already at the stage of choosing the commitment, it is worth reaching for the mortgage credit ranking, which collects in one place the current offers of financial liabilities with mortgage collateral.
It is easier for a customer to choose a specific loan when he sees the characteristics and costs of at least several similar proposals. Let’s see what else to do to minimize the cost of the mortgage.
What does the cost of the mortgage consist of?
The basic cost of a mortgage is its interest, repaid by the borrower on a monthly basis, together with each principal and interest installment. The total cost of credit is basically influenced by two types of costs:
- interest expenses, depending on the mortgage interest rate;
- non-interest expenses not related to credit interest.
The mortgage interest rate depends on two factors:
- interest rate – variable, independent of the bank, set by the Good Finance Investment according to the main interest rates of the Monetary Policy Council (Monetary Policy Council) – it can be, e.g. GFIC 3M or GFIC 6M;
- bank margin – a fixed value determined by the bank, which does not change when the mortgage is repaid but is negotiated by the borrower at the bank.
The customer can only influence the amount of the credit margin, on which the mortgage interest rate depends. Its level depends on several parameters, including the currency of the loan, the customer’s own contribution or the credit capacity and history.
Non-interest costs of mortgage loans include such fees as:
- commission for joining the loan, charged by the bank;
- fee for considering the loan application;
- fee for the valuation of the property, which is to be used as collateral for loan repayment;
- compulsory insurance premium, including bridging insurance until the mortgage is in force for the benefit of the bank or low own down payment insurance;
- other fees.
The total credit costs are within the APRC mortgage. APRC is the annual real interest rate on the loan that includes all costs associated with the loan, including the change in the time value of money.
How to reduce the cost of a mortgage?
Mortgage costs and usually these costs are not small, especially when the repayment of the liability is spread over many years. However, you can take appropriate steps to reduce this cost. We give 8 such ways.
Comparison of offers from several banks
The customer can do a lot to reduce his costs before starting negotiations with the selected bank where he wants to take out a mortgage. We suggest taking your time to compare bank offers. The best offer may not necessarily be the bank’s proposal where the customer has their personal account.
The most important is to compare the proposals of a few or several lenders. It is worth verifying whether, with a given customer’s creditworthiness, you can get a loan and in which bank such a commitment will be as cheap as possible.
You don’t have to collect offers yourself. Much faster verification can be done thanks to the mortgage comparison website, which presents current proposals from various banks.
Rational use of bank promotions
Many banks periodically organize various mortgage loan promotions, for example, lowering the commission for joining the commitment or the loan margin. It is worth recalculating whether such an offer is really as attractive as it seems.
Sometimes the bank’s margin is lowered only for a certain period of time, after which it returns to its original level, which will not necessarily be lower compared to mortgage offers from other banks.
In addition, it may turn out that the customer, of course, has the opportunity to take advantage of an attractive bank promotion for a mortgage, but only if, at the same time, when he decides to commit, e.g. to use a credit card or offer on a bank account.
Care of additional products
If the requirement to use an attractive credit offer is setting up a free bank account, then there is no problem, but if the bank requires setting up a paid account and taking an additional credit card, it may entail some fees, “eating” benefits resulting from the reduction mortgage costs.
Negotiating mortgage terms
It seems obvious that one way to reduce the costs associated with taking out a mortgage will be negotiating the terms of the loan agreement. However, many customers are unaware that this is possible.
A client’s negotiating position is stronger if he has:
- high own contribution to the loan,
- good credit history in GFI,
- high creditworthiness confirmed by relevant documents.
Negotiating the terms of the contract should be preceded by the borrower with adequate preparation for the interview with a bank employee. During the negotiations, the client may refer to many years of cooperation with a banking institution, high own contribution and other factors in his favor.
Shorter repayment period
Borrowing money under a mortgage for a shorter period of time will reduce your total borrowing costs. The sooner we get rid of the debt, the better, although it will probably involve paying monthly relatively higher loan installments.
On the other hand, the shorter loan term will result in interest being charged shorter and, as a result, lower. The differences between mortgages taken for 15 or 30 years may amount to tens of thousands of USD.
Customers who have been paying back their mortgage for some time but want to reduce their installments may try to refinance their commitment. This involves transferring the loan to another bank, which may be associated with the possibility of developing more favorable loan terms than the current ones.
However, it cannot be ruled out that with such an operation you will have to pay a fee for the early repayment of the mortgage in the parent bank, and in the new bank – a commission for granting the obligation.
Early repayment of the mortgage
Early repayment of the loan to the bank is another way to reduce the cost of the mortgage. At any time, the borrower may make its early repayment – total or partial, in accordance with the Act of March 23, 2017. Then he can also recover money for interest and other costs that fell during the period for which the loan agreement with the bank was shortened.
Importantly, in the case of loans bearing interest at a variable interest rate, after 3 years of regular loan repayment, the bank may not charge the borrower for early repayment. When it comes to loans with a fixed interest rate, the bank has the right to always charge such a fee, which is why it is worth checking it out before you pay off your mortgage.
Loan repayment according to decreasing installments
Borrowers can most often decide whether they want to repay their mortgage according to decreasing installments or equal installments during the loan period.
With decreasing installments, a fixed amount of capital is given to the bank every month and a different amount of interest calculated according to the outstanding liability. The advantage of such a loan repayment mode is that the debt is given faster.
Thus, the client gives the bank less interest in total than in the equal installments system. The only problem is that the banks make it possible to pay off the mortgage in decreasing installments with very good creditworthiness of the client.
How to reduce the cost of a mortgage in francs?
In the case of franc mortgage loans, the solution to reduce the cost of lending is the repayment of principal and interest installments directly in a foreign currency. This way you can reduce the costs of currency spread.
In addition, judicial valorization may also be applied to the mortgage contract. It is a civil law institution that enables a court to change the amount of the benefit in the event of a significant change in the purchasing power of money after the liability arises.
Many borrowers of USD mortgages took them when they paid 2-3 CHF for 1 CHF on the currency market. Currently, it is even twice as much, which is why the possibility of using valorization seems most justified.
Holders of loans in francs can ask the court to determine the correct amount of the liability to the lender, taking into account the actual cost of granting the loan by the bank.