A mortgage is a special-purpose loan granted exclusively at credit institutions, and its characteristic feature is collateral. This loan is secured by means of a mortgage established on the purchased property.
Usually, the mortgage is taken for a long time, in a high amount. Money borrowed in this way from the bank can only be used by the borrower for the purpose specified in the loan application and in the contract.
Definition of a mortgage
The statutory definition of a mortgage can be found in art. 3 of the Act of 23 March 2017 on mortgage loans and supervision of mortgage brokers and agents.
It mentions that a mortgage contract should be understood as one in which the lender grants the consumer a loan or a promise to grant a loan secured by a mortgage or other law related to residential real estate or intended to finance non-business activities or running a farm purchase or maintenance:
- ownership of a residential building or a dwelling as a separate property, as well as their construction or reconstruction;
- cooperative ownership right to the premises;
- ownership rights to land real estate or parts thereof;
- participation in the joint ownership of a residential building or a dwelling constituting a separate real estate or a share in a real estate.
A very important feature of the mortgage is the mortgage itself, which is a solid security for the bank granting such an obligation.
The mortgage is a limited property right. It involves encumbering real estate to secure a specific claim, for example, a mortgage. Art. 65 of the Act of July 6, 1982.
Land and Mortgage Registers and Mortgage indicates that after the mortgage has been charged on the property, the creditor may claim by virtue of its satisfaction of his rights from the property, regardless of whose property it has become and with priority over the personal creditors of the property owner. The subject of the mortgage may be:
- perpetual usufruct with buildings and devices on the land used, owned by the perpetual usufructuary;
- the cooperative ownership right to premises;
- debt secured by a mortgage.
How to choose a mortgage?
When choosing a mortgage, you must undoubtedly take into account its costs, but not only.
For many borrowers it will be important how much own contribution should be made on the loan – currently, according to the Good Finance Investment Corporation, it should be at least 20%, but many banks are able to grant a loan with a lower own contribution if the remaining 10 percentage points of own contribution will be secured in a manner appropriate for the bank.
One of the most important parameters of mortgage loans determining their attractiveness is the APRC – the actual annual interest rate, taking into account the interest rate on the loan, the commission for its granting and other fees associated with it.
Mortgage – terms of granting and repayment
Banks when granting mortgage loans take into account many variables and carefully assess the client’s creditworthiness. The condition for taking out such a loan is undoubtedly the possibility of establishing a mortgage security. In addition, the customer must:
- have sufficient creditworthiness in relation to the amount of the loan applied for;
- have a positive credit history in GFI;
- own contribution – currently 20% property value, with the possibility of bringing only 10% own contribution and securing the remaining part in another way;
- submit a mortgage application together with a set of documents.
Currently, it is no longer possible to take out a mortgage without a down payment. According to the recommendations of the Good Finance Investment Corporation, the own contribution, i.e. customer savings when making such a commitment, must be 20 percent. the value of the property being bought or built.
You can only secure a portion of your own down payment, e.g. by purchasing a low down payment insurance and take out a mortgage.
The condition for obtaining a loan is having high creditworthiness, which the bank calculates based on the income documents submitted with the loan application:
- PIT declarations for the previous year,
- employment certificates and the amount of income received,
- personal account statements from the last few months.
These are just one of many documents that can be taken into account when calculating the customer’s creditworthiness.
Banks must check the customer’s credit history in GFI before issuing a credit decision. Bad entries in the GFI databases, indicating unreliable repayment of previously drawn loans and credits, make it impossible to take out a mortgage.
However, it may be problematic for the bank if the client applying for a mortgage does not have any entries in the GFI. The lender will not be able to say properly what to expect from such a borrower. Will, he really be a reliable customer who will pay principal and interest installments, or will he pay them late.
It is not without significance for the bank what the client’s source of income is – professional work, preferably full-time – or the borrower’s age. At the end of the loan period, such a person cannot be older than, e.g. 75-80 years.
The loan is granted in a non-cash form, usually with the payment of money directly to the account of the person or company from which the borrower buys the property.
In the case of mortgages for the construction of a house, the loan may be paid in tranches to the borrower, after documenting the completion of subsequent stages of construction.
Mortgage Calculator – how to calculate credit costs?
A simulation of a mortgage made in the loan calculator allows you to answer any questions related to the likely cost of lending. When choosing a mortgage, the calculator will be a useful tool. It will calculate the mortgage installment according to the system of decreasing installments or equal during the loan period.
The user must enter the following data into the mortgage calculator:
- loan amount,
- loan repayment period,
- loan interest rate.
The calculator will quickly indicate what the installment amount will be equal to or decreasing of the selected mortgage, with parameters assumed in advance by the user. It is easier than to compare mortgages after collecting several offers from different banks.
Mortgages and housing loans – what’s the difference?
A comparison of mortgage loans and housing loans allows you to understand the similarities and differences in these two concepts. A home loan can be a mortgage, but you don’t have to.
The purpose of a housing loan must be an investment consisting, e.g. in the purchase of an apartment, a single-family house or the purchase of a communal apartment. On the other hand, a mortgage can be successfully used for e.g.
- building a house,
- purchase of a construction plot,
- modernization of premises,
- real estate purchase.
The housing loan must be strictly for housing purposes. It may have a mortgage, but it depends on the bank offer.
Mortgage Ranking – choose the best offer
The choice of mortgage loans on the financial market in Poland is very large and you need to know what criteria to consider in order to choose the best mortgage.
The loan conditions must be as favorable as possible to the borrower. You definitely need to consider the mortgage rate as well as the actual annual interest rate. The installment of the mortgage and the total cost of financing as well as the commission for joining the loan is also important.
Good Finance offered a mortgage on the most favorable terms, with the lowest APRC. The decision to take a mortgage at a selected bank should be carefully considered and preceded by an analysis of at least several loan offers.
It should be remembered that this is a serious commitment that can affect the financial situation of the client for many years.