Mortgage loan - frequently asked questions:

1. What is a loan interest rate?
One of the most important loan parameters is the interest rate. The height of the interest rate on a loan is variable; it consists of the bank's margin and a reference rate depending on the currency.
While comparing different offers, it is worth paying attention not only to the joint interest rate on the day of presenting the offer, but also to the total amount of the bank margin, as it is the latter that determines the price of the loan. 2. When is the commission on the loan to be paid?
Before granting a loan, many banks charge a one-off payment, which is often converted into insurance. One should always consider what is more advantageous to the borrower - paying a commission or taking out an insurance (e.g. life insurance or against unemployment) and paying instalments in advance for a dozen or so months. The cost of such insurance is often higher than the commission charged by the bank. In addition, one has to remember that the commission is a one-time payment whereas insurance sometimes has to be continued. Naturally, one has to look for offers with the lowest possible commission or with no commission whatsoever.
3. What instalments will be better for me - fixed or decreasing?
In the case of fixed instalments, we pay the same amount every month while differences in the height of istalments may be due exclusively to the changing interest and currency rate (if we decide to take out a loan in a foreign currency). However, if we choose decreasing instalments, we shall pay less every month. On the other hand, in the case of decreasing instalments, we shall pay less interest than if we paid fixed instalments throughout the entire loan period, yet the initial payments will be higher by about 25-30 percent, than in the case of fixed instalments.
4. Is my own contribution needed, and if so what is its minimum height to get a loan?
Generally, banks require 10-20 percent of one's own contribution to the investment. If we are unable to provide such a contribution, the missing part should be insured, in most cases for a 3-year period. When selecting a bank, we should check how much an insurance costs, what obligations we have to fulfil and what fees we have to pay after 3 years, if we are unable to obtain the required financial contribution. At the same time, it should be remembered that the bank usually reimburses clients for a part of the insurance instalment, if they overpay for the loan and the required sum of their own contribution.
5. What is the loan period?
It is a period since the signing of the contract until a full repayment of the loan together with interest.
6.Can I pay off the loan earlier?
When planning to pay off the loan earlier or making partial overpayments, an important factor is the lowest possible commission for those activities or no commission whatsoever. We should also check whether, after making such an overpayment, the bank requires an amendment agreement and how much it costs. The commission that the bank takes for paying off the loan earlier may be charged on the repayment amount or the total amount of the loan granted. In the case of partial loan repayment, in most banks there are two options: to remain with the current instalment amount, which shortens the loan period, or to continue with the loan period specified in the contract, thus gaining a smaller monthly instalment.
7. What loan security can I count on?
When granting a mortgage loan, the bank will want to secure it thoroughly. Part of the proposed insurance will be a condition for granting a loan. Below you will find the individual credit collaterals:

• Transitional insurance, also known as the bridge insurance, secures the money transferred by the bank until the mortgage is entered in the land and mortgage register. Most often it is an increased interest rate on the loan.
• Fire and all property damage insurance. This type of insurance is a secure loan with the bank. Unlike transitional one, fire and all property damage insurance is valid for the entire loan period.
• Client’s individual contribution insurance. Even if banks provide loans for 90% of the property value, they require 20% of client’s own contribution. If a client is unable to provide such contribution, he is expected to pay whole insurance.
• Life insurance. The necessity for this kind of insurance is less common these days and is required only by some banks.
• Unemployment insurance. This kind of insurance is increasingly used however it is not common or obligatory. Its cost is usually quite high and ranges from 1.2 percent up to even 3 percent of the loan amount. The benefit of this insurance is the guarantee of repayment of the loan instalments within a period of 6 or 12 months from the moment of unemployment.
• Investment and credit together; a mortgage loan combined with an investment fund is an effective fusion of a long-term mortgage loan with investment in selected funds. In this way, you may obtain a double profit - a reduction in the loan margin and successive multiplication of savings, which allows you to reduce the cost of the loan in the long run. This is possible thanks to the long-term profits derived from mutual funds; the latter ones, as a rule, exceed the interest rate on mortgage loans. The loan combined with the investment constitutes an additional security for the borrower. In the event of unexpected problems with the repayment of instalments, own funds accumulated in the investment fund are always available.

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