Mortgage

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It used to be said about the mortgage that it was easy to take out and difficult to pay back. Nowadays, it is not at all that easy to even get this loan, and the subject of mortgages itself involves many decisions and dilemmas. What can be an equity contribution? What about a loan if you lose your job? What documents are necessary to obtain a mortgage? What to look for when choosing a mortgage loan? We will try to answer these questions and many more in this article collecting reliable information on the most important mortgage issues in one place.
In this article you will explore and learn about, among other things:

What is a mortgage?

A mortgage is a limited right in rem that encumbers real estate to secure a specific claim. It allows a creditor to satisfy a claim from the encumbered property regardless of whose ownership it has become.
Due to the constantly evolving offer, the division of the mortgage financing system is conventional. The characteristics of mortgage tools are specified, among which are the type of property market being lent, the type of currency of the loan, the interest rate and the method of repayment. The simplest division is to distinguish between a mortgage loan and a construction-mortgage loan.
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Mortgage or construction-mortgage loan?

In its simplest terms, a mortgage is a real estate financing tool designed, among other things, to realise a purchase of a property, a cooperative housing right, to cover the costs of finishing or renovation. It is generally mobilised as a one-off payment fully credited to the account of the seller of the property on the basis of a notarial deed.
A construction-mortgage loan is taken out to finance the completion of construction works. It is usually enforced in tranches upon completion of successive stages of construction. The transfer of the next tranche is conditional on the borrower clearing the funds previously received. The bank may order a site inspection. Once the first phase is over, the second part of the process – the mortgage phase – begins. Its commencement is determined by the moment the builder obtains an occupancy permit, if required, or from the moment the construction is declared complete. The construction-mortgage loan is characterised by a significantly higher risk for the lender, as the construction phase involves additional risks.
Specific features, such as the long repayment period (reaching up to several decades!), meant that until a decade or so ago only specialised financial institutions called mortgage banks were allowed to grant this type of loan.

Indicators describing loans

The terms and conditions of a mortgage include many parameters. What is the loan margin? What is a bank commission? What is the difference between the interest rate and the APR? When deciding to sign a loan agreement, it is essential to compare the credit terms of the offers of various financial institutions. Below is a short glossary of the most important terms related to mortgages.
  • Mortgage margin – a component part of the annual interest rate of the loan. Its value is fixed and can only be changed by mutual agreement between the parties to the loan agreement. It represents payment for the granting of the loan and depends on the individual policy of the bank.
  • Commission – represents a one-off fee charged by the bank. Its amount is set as a percentage of the value of the loan.
  • Nominal interest rate – the sum of the bank’s fixed margin and a variable market rate (WIBOR 6M). It may include additional charges. For this reason, when comparing different loan offers, it is worth paying attention to the annual percentage rate of charge (APR).
  • The APR, or the Annual Percentage Rate of Interest, is an indicator expressed in percentage terms that shows what the actual cost of a commitment taken out is, i.e. how much you should pay for the opportunity to borrow money. In contrast to the nominal interest rate, the APR is a much more elaborate issue that describes all the costs that a borrower incurs following the conclusion of a contract with a bank or other financial institution.
Paradoxically, a loan with a higher margin can be a much more favourable offer than one with a low margin. It is all due to the additional fee, which is the commission. Soon, we will answer the question which ratio of margin to commission is more favourable depending on the loan repayment period. In the following articles, we will also describe whether the pandemic has a real impact on the creditworthiness of Poles, which form of credit fee is the most advantageous and how to calculate creditworthiness.
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