Borrower’s dilemmas

A mortgage is the cheapest solution for people who do not have their own funds to buy real estate. However, this is not a simple product, and the number of various credit options offered by several dozen banks makes you pay attention to the fact that the offers are very individualized.

Therefore, it is worth acquiring the appropriate knowledge to properly match the mortgage to your own expectations. A wide selection often makes it difficult to choose the best offer. Let’s follow the most common dilemmas faced by people who decide to take a mortgage.

Choosing the right bank

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People who already use the services of a bank usually first steps towards it asking about the loan and the terms of the offer. Often, after receiving information that they will receive the loan and about the installment amount, they decide to take the loan there, assuming that the offers at other banks are probably similar. And all this account transfer or learning the rules in another bank discourages you from choosing a loan other than your own.

So habits are usually out of the question. And this is the biggest mistake! Banks differ greatly in their offer, both in terms of interest and the amount of the installment associated with it, as well as commissions and all additional insurance costs. What’s more, their offer is not constant, but it changes frequently adapting to market competition.

But the person who does not compare banks’ offers will not find out, and instead of paying, for example, a loan installment of USD 1,500 / month, he will pay 1,900 USD / month and instead of paying nothing for receiving the loan, for example, he will pay USD 15,000.

Realizing this is reason enough to go around a dozen banks comparing their offer or use the services of a good credit broker. At the same time, using the services of an adviser allows you to save time and compare all credit parameters, not just those that you want to provide to the adviser directly in banks.

Currency or USD

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A dilemma that did not take place during the several years of crisis due to the very limited supply of foreign currency loans. When choosing a currency, certain rules should be applied and the fact that at first glance the installment of a loan in USD is higher than that in USD may be misleading when choosing the most advantageous option.

Sometimes it is worth considering three times before you decide on a currency loan. First of all, a USD loan is profitable for everyone who takes it for a short period or intends to pay it off or overpay faster. The same if they treat the purchase of real estate as investment and after the price increase on the market it is to be sold. It all results from a simple calculation. The loan in USD is not subject to exchange rate risk and we will usually save a lot of money without giving the bank a profit on the exchange rate difference, i.e. spread.

Foreign currency loan is more profitable for people who take it for a very long period, e.g. 30 years, and intend to pay it regularly after installment without additional overpayments. Then the amount of the loan installment is more important, and the one with foreign currency loan is lower, which results from the fact that in Poland we have higher interest rates than in Switzerland, the USDopean Union or even the USA. Exceptionally, when analyzing whether to choose a loan in USD or in USD, it adds a taste that we will be in this zone in the near future and our native currency will be USD, which, as in USD, will be devoid of exchange rate and spread risk.

Annuit or capital installments

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Annuitowe means equal and capital means decreasing. Each time the borrower’s dilemma lies in the paradox of whether to pay lower installments now or pay a lower interest cost of the loan throughout the loan period. If someone does not make a difference to several hundred dollarss paid simultaneously, then decreasing installments are a good solution.

Firstly, most of the capital or borrowed money will be repaid at the very beginning, and secondly because interest will accrue on an ever lower amount – which is why the overall interest cost of the loan becomes lower. Such a solution is usually argued by the fact that the loan will not be repaid for a period of 30 years, for example, because it rarely happens.

It also does not take into account the relative credit burden. Usually this initial period is the most difficult to pay off – installments are usually calculated at the limit of our financial capabilities, plus additional payments in the form of temporary insurance and often other insurance. You should also remember about the huge financial effort in the form of paying all credit, notary, tax and real estate costs. At the beginning, every dollars counts. However, in a few years the loan installment will not bother you that much.

A few years is a period in which inflation also “works” and in which salaries usually increase, the value of real estate increases and the loan installment will still be at the same level only depending on the exchange rate and interest rates.

The above description is also called the time value of money and many times in such calculations it turns out that annuity installments are cheaper. In addition, by overpaying the loan, we will also overpay capital and the difference in interest costs of equal and decreasing installments will also decrease in such cases.

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