Only six months is left to take out a loan covering the entire value of the property. Currently, despite the large number of banks granting mortgage loans, only 10 have such loans on offer.
Lack of savings is not an obstacle to buying a mortgage-financed property
Only by the end of this year, banks will be able to offer loans to customers to buy real estate without having to invest their own money. The situation will change in six months, i.e. from January 1, 2014. Then each borrower will have to have savings of at least 5% of the property value. All thanks to the new Recommendation S adopted recently by the Polish Financial Supervision Authority. However, today, when the potential borrower has no savings, he can apply for a mortgage for 100% of the property value. 10 banks have such offers. The criteria that must be met are practically the same as those for loans with own contribution. You must have adequate creditworthiness, and the property must meet certain conditions. Similarly, price parameters do not differ much from other loans. Banks charge the same commissions, require the same crosselling (account, credit card), and process the application at the same time. The only difference is a slightly higher margin (around 0.2-0.4 pp) and additional insurance of low own contribution. However, observing the banking market, it can be seen that this is a decline in this type of loans and banks are withdrawing their offers from the will. At the beginning of this year, loans were 100% offered by 13 banks. Goldcoin Credit, HPB Bank and Credit Circle have recently withdrawn from them.
You have to pay for the lack of own contribution
Borrowers who decide on a 100% LTV loan must reckon with the fact that their loan will be more expensive than the loan in the same amount, but with their own contribution. The margin for a 100% loan is usually 0.2-0.4 pp higher than for a similar loan if the customer engages own funds. However, the more severe fee is the so-called low own contribution insurance, which increases the overall cost of the loan. We must pay this fee until the minimum loan amount of 20% has been repaid, which in the case of a 30-year commitment takes between 7 and 10 years. This means additional, non-interest costs paid for almost 1/3 of the repayment period. Banks charge this fee in two ways. Some of them collect the premium for a period of 3 or 5 years and it is renewed for the next period if the required level of own contribution is not obtained after this time. Other banks include the cost of insurance in the interest rate of the loan, increasing its amount by 0.25-0.6 pp until obtaining the required contribution. In practice, this means that for the first 7-10 years of the repayment period we pay interest accrued on the increased interest rate on the loan.
It is worth comparing the cost in both options. Let’s assume that we take out a loan in the amount of $ 250 thousand, for 100% of the property value with an interest rate of 4%. The required 20 percent own contribution (50 thousand) will be obtained after 115 months of repayment. If the low own contribution insurance premium is 3.5% of the missing amount, the first fee will be 1750 dollars, but in subsequent periods the use of increasing own shares will decrease. The total cost of insurance will be around $ 3,767.
Insurance is calculated by increasing the interest rate
The total cost will be much higher. Let’s assume that with the same loan parameters, insurance is calculated by increasing the margin by 0.5 pp. This means that the required 20% own contribution will be obtained only after 121 months. Due to higher interest and slower repayment of capital, the total interest costs will be higher by $ 13 624 than in the case of an interest-bearing loan at the level of 4.00%. It can therefore be said that the insurance of a low own contribution costs almost $ 14,000 in this situation and it is much higher than the one paid in the first example. When taking out a 100% loan, it is worth bearing in mind the very high costs associated with insuring a low down payment. Of course, these fees can be reduced if we repay the loan.