09 stycznia 2022

How to lower your mortgage costs? - 9 ways to reduce your mortgage loan

How to lower your mortgage costs? - 9 ways to reduce your mortgage loan


It is worth taking care of the lowest possible loan costs and convenient repayment conditions when signing a mortgage contract. The key is to compare the offers available from different banks and choose the cheapest option. Even after receiving the initial credit decision, we still have the opportunity to negotiate the loan terms proposed by the bank, e.g. lowering the commission in exchange for using additional products. What you will learn in this article:

  • Is it possible to negotiate a mortgage and reduce costs?
  • Mortgage reduction - when is it worth considering and who can apply?

  • How to lower the cost of a mortgage? 9 ways

  • Mortgage reduction application - what should it contain and how to write it?

  • Lowering the mortgage installment - is it worth negotiating the terms?

 

Everyone would like to pay as little as possible for their mortgage. Already at the stage of choosing the liability, it is worth reaching for the mortgage loan ranking, gathering in one place the current offers of financial liabilities with mortgage collateral.

 

It is easier for the customer to choose a specific loan when he sees a list of features and costs of at least a few similar proposals. Let's check what else to do to minimize the cost of the mortgage.

 

Is it possible to negotiate a mortgage and reduce costs?

 

It is worth taking care of the lowest possible loan costs and convenient repayment conditions when signing a mortgage contract. The key is to compare the offers available from different banks and choose the cheapest option. Even after receiving the initial credit decision, we still have the opportunity to negotiate the loan terms proposed by the bank, e.g. lowering the commission in exchange for using additional products

 

What if after some time it turns out that we are paying too high installments? Can the loan installment be reduced during the term of the contract? It is possible and there are several ways to do it. We can, for example, apply for an extension of the loan period. If the bank agrees, the mortgage recalculation will take place, as a result of which the amount of subsequent installments will change. You can also transfer your mortgage to a competitor bank that offers better interest rates.

 

Negative interest rates - what do they mean?

 

We are used to the fact that financial products such as deposits bring profit. We deposit funds on the deposit for a specified period of time and on specified terms, and after that time, the bank pays us funds increased by a percentage of the profit. The situation of low interest rates enjoyed by borrowers is not favorable to depositors. Their profits, which depend on the level of interest rates, are symbolic.

 

But what if there are negative interest rates? In this case, the situation of borrowers still looks favorable, because the bank will not earn from the interest on their loans. The situation for deposit holders, however, will look even less in such a situation. By placing funds on the deposit, not only will we not earn, but after the time for which the deposit has been concluded, the bank may return us less funds than we paid to it.

 

What is the cost of a mortgage?

 

The basic cost of a mortgage is its interest, repaid by the borrower every month, together with each principal and interest installment. There are basically two types of costs that affect the total cost of the loan:

  • interest costs, depending on the mortgage interest rate;

  • non-interest costs - e.g. commission for granting a loan, insurance.

 

The mortgage rate depends on two factors:

  • the amount of the interest rate - variable, independent of the bank, determined by the National Bank of Poland according to the main interest rates of the Monetary Policy Council (Monetary Policy Council) - it may be, for example, WIBOR (R) 3M or WIBOR (R) 6M;

  • bank margin - a fixed value set by the bank.

 

You can negotiate the margin and the amount of the commission, but it is possible mainly when making a commitment.

 

Mortgage reduction - when is it worth considering and who can apply? Mortgage reduction - when is it worth considering and who can apply?

 

In the first place, customers who have problems with their repayment due to the deteriorating financial situation should apply for a reduction in the mortgage installment. In their case, such a reduction in installments is absolutely justified, as it allows to avoid delays in repayment of the liability and the related consequences, i.e. debt collection, penalty interest or deterioration of credit history at BIK.

 

In fact, however, each borrower can talk to the bank about reducing installments, if he has a reason to do so. The basis for negotiations may be, for example, unfavorable contract terms compared to those currently in force on the market. How to negotiate a mortgage in such a situation, we will explain later in the text.

 

It is worth remembering that banks are willing to grant a request for a reduction in installments, but mainly if the borrower has so far repaid his liabilities on time.

 

How to lower the cost of a mortgage? 9 ways

 

A mortgage loan costs money and usually these costs are not small, especially when the repayment of the liability is spread over many years. However, you can take steps to reduce this cost. We list 9 such methods:

 

Method 1: Compare offers from several banks

 

Before starting negotiations with the selected bank, the client can do a lot to reduce its costs. We propose that you spend your time comparing bank offers. The best offer does not necessarily have to be that of the bank where the customer has his personal account.

 

The most important thing is to compare the offers of several or a dozen lenders. It is worth verifying whether a loan can be obtained with a given customer's creditworthiness and at which bank such a commitment will be as cheap as possible.

 

You don't have to collect bids yourself. Such verification can be done much faster thanks to the mortgage comparison website, which presents current offers from various banks.

 

Method 2: Negotiating the terms of the mortgage loan

 

It seems obvious that one of the ways to reduce the costs of taking out a mortgage will be to negotiate the terms of the loan agreement. However, many customers do not realize that it is possible.

 

A client's negotiating power is stronger if he has:

  • high own contribution,

  • good credit history at BIK,

  • high creditworthiness confirmed by relevant documents.

 

Negotiating the terms of the contract should be preceded by the borrower with appropriate preparation for an 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.

 

It is also worth knowing that banks themselves often offer the possibility of lowering credit costs, provided that the client uses other products, e.g. he buys additional insurance or opens a personal account, which will be affected by his remuneration. As a result of such cross-selling, a mortgage loan can be much cheaper - banks most often offer a margin reduction or a 0% commission here.

 

And how to negotiate lower loan costs during the term of the contract? Unfortunately, it will be a bit more difficult, because in this case you can only try to lower the margin, which is, as a rule, constant. An argument for lowering it may be, for example, increasing income (and thus creditworthiness), timely repayment of existing installments, or the desire to use additional bank products.

 

How much can you save in reducing your margin by just 0.10%? With a loan of PLN 300,000 with a repayment period of 25 years, the total cost of the liability will decrease by approximately PLN 4,895.

 

Method 3: Shortening the loan repayment period

 

Borrowing money under a mortgage for a shorter period of time will reduce the total cost of the loan. The sooner we get rid of the debt, the better, although it will probably involve paying off relatively higher loan installments every month.

 

On the other hand, a shorter loan period will mean that the interest will be charged shorter and, as a result, will be lower. The differences between mortgage loans taken for 15 or 30 years may amount to several dozen thousand zlotys.

 

For example, the total cost of a loan of PLN 300,000 taken on standard terms for 15 years is PLN 101,254.27, while for 30 years as much as PLN 212,169.10, which is more than twice as much.

 

However, it is worth considering what will be better - reducing the installment or shortening the loan period. The first option is more expensive and requires a longer payment of installments, but they are lower, so if financial problems arise in the future, it will be easier to deal with their payment.

 

Method 4: Mortgage refinancing

 

Clients who have been repaying their mortgage for some time but want to lower their installments can try to refinance their liabilities. It consists in transferring the loan to another bank, which may be associated with the possibility of developing more favorable loan conditions than the current ones.

 

It is possible, however, that with such an operation you will have to pay a fee for early mortgage repayment in the home bank, and in the new one - a commission for making a commitment.

 

Method 5: Mortgage restructuring

 

During the term of the contract, it may happen that the repayment of installments becomes too heavy a burden, e.g. due to a reduction in income, temporary loss of job or enlargement of the family. In such a situation, you can submit an application to the bank for the restructuring of the mortgage loan. It should explain the deterioration of the financial situation and ask for a change in the terms of repayment of the liability, e.g. for a permanent or temporary reduction in installments, or, if necessary, for a temporary suspension of capital repayment.

 

Method 6: Loan repayment by decreasing installments

 

Another way to reduce the cost of the mortgage is early repayment of the loan to the bank. At any time, the borrower may make an early repayment - full or partial, in accordance with the Act of March 23, 2017. Then, it can also recover money for interest and other costs that fell for the period by which the loan agreement with the bank was shortened.

 

Importantly, in the case of loans bearing a variable interest rate, after 3 years of regular loan repayment, the bank cannot charge the borrower for early repayment. When it comes to loans with a fixed interest rate, the bank has the right to charge such a fee always, so it is worth checking it before paying off the mortgage.

 

The most profitable thing is to pay off your mortgage early at a bank that does not charge any commission on this account. How much can you save on such an operation? Let's assume that we have a mortgage loan of PLN 300,000 and a contract signed for 25 years. If we decide to pay off the liability within 20 years, the cost of the loan will drop by almost PLN 37,000. zloty.

 

Method 7: Loan repayment by decreasing installments

 

Borrowers can most often decide whether they want to pay off their mortgage in decreasing or equal installments over the loan period.

 

With decreasing installments, a fixed amount of principal is paid to the bank every month, and a different amount of interest, calculated according to the outstanding liability. The advantage of this type of loan repayment is that the debt return is faster.

 

Thus, the customer gives the bank less interest than in the equal installments system. The only problem is that banks allow you to pay off the mortgage in decreasing installments with very good creditworthiness of the customer. At the beginning of the contract, the installments are quite high, so you should have adequate income to be able to regulate them.

 

How much can you save on costs by choosing decreasing installments? Just look at an example calculation:
 

The total cost of a mortgage for PLN 300,000 with a repayment period of 25 years, depending on the type of installments, is:

  • for equal installments - PLN 173,508.69

  • for decreasing installments - PLN 147,999.50

 

Therefore, you can save PLN 25,509.19.

 

Method 8:Credit Consolidation

 

In the case of paying off a mortgage and other liabilities, e.g. a cash loan, it is worth considering combining them into one new consolidation loan. In this case, it will also have to be secured by a real estate mortgage. With such consolidation, it is possible to establish new terms of repayment of the total amount of debt, e.g. extend the loan period, which will result in a reduction in monthly charges. To put it simply, the new installment may be lower than the sum of the installments regulated so far.

 

Method 9: Suspension of loan repayment

 

People who struggle with financial problems may apply to the bank for a mortgage suspension. Such credit holidays usually consist in deferring the repayment of 3 to 6 principal installments - during this time you only have to pay off interest.

 

The result of such an operation is either the extension of the loan period after the grace period, or the spreading of unpaid capital over the remaining installments, which are then higher. It is worth knowing that during the coronavirus pandemic, you can take advantage of the statutory privilege to suspend your mortgage payments for a period of 3 months. This option is available in almost all banks, but mainly for people who have lost their jobs as a result of the pandemic.

 

Mortgage reduction application - what should it contain and how to write it?

 

If you want to apply to the bank for a reduction in the mortgage installment, you must submit an appropriate application. In many institutions this can be done online via a ready-made form. However, you might as well write it yourself. Such an application for reduction of loan installments must contain at least the following information:

  • borrower's data,

  • credit agreement number,

  • a request for a reduction in mortgage installments (please indicate whether it is to be a permanent reduction in installments or only temporary),

  • justification of the request.

 

In ready-made forms, banks often require information on the current financial situation, and often also its documentation, e.g. providing a certificate of income or termination of an employment contract.

 

Lowering the mortgage installment - is it worth negotiating the terms?

 

The terms of the loan agreement can always be negotiated, but it should be carefully considered beforehand. If the reduction of the mortgage installment is necessary due to the difficult financial situation and its restructuring will be necessary, it is worth being aware of the consequences of such an operation. Extending the repayment period will increase the total loan costs, while the temporary suspension of capital installments will result in an increase in later installments.

 

It is much more advantageous to reduce the loan installment by lowering its costs. However, negotiating your mortgage margin over the life of your contract can be difficult with your bank. If you do not have strong arguments, you can consider, for example, refinancing your loan, i.e. transferring it to a competitive bank offering better conditions. There are many possibilities to change the terms of repayment of the liability, but each has advantages and disadvantages, so before taking any steps, it is worth analyzing them carefully.

 

 

Remember that if you have any doubts, I am happy to offer you advice and assistance. Let's meet, you will find that my help in choosing the best mortgage can be invaluable.

 

Feel free to comment. Is the topic of credit analysis interesting for you? Let me know in the comment. Will be happy to help clarify all issues. It is important to me that every topic regarding the mortgage is absolutely explained.

 

 

 

CONTACT ME >

Mortgage broker

Michal Kaplon

os.Stefana Batorego 80

60-687 Poznan

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