What mistakes do you make when taking out a mortgage? The list can be long and the consequences expensive. It is worth not to make them because credit is a commitment for many years.
Variable interest rate and loan installment amount
Mortgages are liabilities for up to 35 years. When calculating the future loan installment, we must not forget that its amount calculated as of today is likely to change in the future, all thanks to interest rates influenced by WIBOR – Warsaw Interbank Offer Rate – the interest rate at which some banks grant loans to others banks. This rate is variable and depending on the bank may change every 3 or 6 months. There are sometimes banks that temporarily offer fixed interest rates – usually over a period of 5 years. Of course, it is difficult to predict the level of interest rates in 10, 15 or 20 years, but it is worth being aware of the impact on the installment of their increase. For rational planning of the household budget, one should be able to answer the question what would be the amount of the monthly installment with the increase in WIBOR by 1, 2 or 5 percentage points. Such knowledge can save us from unpleasant financial surprises in the future. An expert with knowledge and experience, who knows the realities of financial markets, will help here.
“Your” bank’s credit offer
Assuming in advance that your bank will give you the best loan is a mistake. Convenience, habit or sometimes reluctance to change means that we do not check the offers of competing banks. Customers often have a deep conviction that due to the fact that they are long-term customers of “their bank” they will receive the best possible financing conditions for the purchase of real estate. The banks in which we have accounts do not always have the best credit offer and do not always promote loyalty. However, it may happen that, having our full history, they can find weak points in it that can affect the offer and final credit decision. Even if you are fully convinced that our bank’s offer is the best, it is necessary to analyze the proposals of other banks. Preferably with the help of a specialist who will pay attention to all conditions of the offer and costs.
Submission of a loan application to only one bank
A common mistake among customers with a very good financial standing and the apparent lack of problems in obtaining a mortgage is to submit a loan application to only one bank. It should be realized that during the credit analysis carried out by the bank, there may be circumstances that we did not spray, and which may be the reason for a negative decision or extension of the analysis time or the entire credit process (credit history, non-acceptance of real estate, reduction in value valuations, unpaid bill or other forgotten event). If we submit applications to two or three banks at the same time, we will significantly increase ourselves the chance of obtaining a loan in the event of an unsatisfactory decision at the first choice bank. Acting with the help of an independent specialist, we will make loan applications optimally, saving ourselves time and nerves.
Additional banking products for the loan
It is common for banks to take additional products when taking out a mortgage, such as a bank account or credit card. Thanks to this, the borrower can count on better credit conditions, e.g. a lower margin. However, additional products carry an additional cost that should be considered when estimating credit costs and comparing offers from individual banks. It should also be remembered that these products should be actively used, i.e., for example, top up your account with a specific amount every month or make purchases using a credit card. Failure to meet this obligation will probably meet with additional penalties on the part of the bank in the form of raising the loan margin.
Pursuant to the Act of 23 March 2017 on mortgage loans and on the supervision of mortgage brokers and agents, the rules for granting loans were regulated, including the limits in which banks can set conditions for early repayment and overpayments. The cost of additional products often depends on the loan period and various other factors. Help in making decisions with the participation of an experienced and objective financial expert can be invaluable. Such impartiality will allow you to rationally assess and choose only those additional products that are absolutely necessary or beneficial, and not choose those that give little benefits, and will be only an additional and unnecessary cost.
Life insurance with a mortgage
Life policies are still recognized by customers as an additional and unnecessary cost. Meanwhile, policies should be an indispensable addition to any loan. It does not necessarily have to be the policy offered by the bank, especially since credit-related insurance products are medium quality products. Most often they are group insurance with many exclusions, not preceded by a medical survey on the state of health and individual analysis. In the event of the borrower’s death, except for the personal loss of a loved one, such an event almost always has a significant financial dimension. It may happen that the financial situation of a person who will pay off the entire loan installment will be insufficient to service the loan.
Another unforeseen circumstance may be the right of succession, as a result of which, without the consent of the guardianship court, the sale of real estate, which is co-owner after the division of the estate, is a minor. Policies proposed by banks also usually do not protect borrowers against the consequences of illnesses, medical expenses or income restrictions. This approach to loan collateral should trigger the borrower’s need to have a policy that not only satisfies the bank’s needs but, above all, helps to solve these unpredictable situations to which borrowers and their relatives are exposed. All policies should be consulted with an insurance specialist who will analyze them and possibly present full coverage insurance offers.
There are many more pitfalls, each of them can have a significant impact on the amount of the mortgage contracted and finally the monthly installment of the loan. Each borrower is an individual case with a different situation requiring a separate approach. Only an experienced financial expert can provide maximum comfort and convenience and the certainty of choosing the best credit offer.