Mortgage costs – how to reduce?
It usually happens that we are not aware of how many factors affect the cost of the mortgage. As a result, we repay significantly larger loan installments than we should and we can’t save even a small amount of money. From the article below you will learn what factors affect the cost of a home loan to the greatest extent and what elements need special attention. In addition, you’ll read what you need to do to lower your mortgage cost. Enjoy reading!
Mortgage costs – what do they depend on?
Each borrower should be aware of what factors affect the amount of mortgage and cash loan costs. With this knowledge, you can save some money and then spend it on any purpose not related to loan repayment. Below are the elements that most affect the total cost of a home loan:
- mortgage interest rate,
- commission for granting a mortgage,
- mortgage installments.
Home loan interest rate – what does it consist of?
The total cost of the mortgage is greatly influenced by interest, which consists of the following factors:
- interest rate – that is, a variable whose amount is not determined by the bank or the borrower. The decision in this matter is made only by the Central Bank. One should know that when the interest rate is reduced, then the interest rate on the loan immediately decreases.
Importantly, most borrowers opt for a variable interest rate during the loan procedure because they reduce the total cost of the home loan. Some also choose a fixed interest rate, which is less profitable but provides greater security and comfort.
- margin – which is fixed and does not change during the repayment of the mortgage. Its amount is influenced by the following elements: currency, commission, own contribution, credit standing and credit history, cross sell or type of real estate. The bank makes the final decision about the margin.
Commission for granting a mortgage – find out how much it costs
Can a borrower count on the same commission fee for granting a mortgage at each bank? Unfortunately not, but it is worth knowing that in most institutions the commission is from 1 to 3 percent. loan amount. Below we indicate the factors that the lender takes into account when determining the amount of such commission.
- mortgage amount,
- loan period,
- type of property purchased,
- loan period,
- ratio of the mortgage amount to the value of the real estate being credited
- consumer creditworthiness.
Important – the lender can settle the commission for granting a mortgage in two ways: in the form of a one-off payment or repayment in loan installments.
Mortgage installments – what to decide on?
Mortgage installments consist of two parts: interest and capital. The borrower can repay the loan by means of equal or decreasing installments. The first are characterized by the fact that we pay interest first and then gradually adjust the capital over time. In the case of decreasing installments, interest is calculated on real debt, which reduces the amount of interest.
Other mortgage costs
In addition to the above-mentioned factors, it is also worth learning about other elements that have a huge impact on the total cost of the mortgage. In this way, it will be much easier to analyze the terms of the loan agreement with the bank and slightly reduce the cost of the housing loan. It is worth noting that the costs include mortgage insurance, repayment period (the longer the more expensive it is), as well as grace period and credit holidays.
The loan repayment period has a big impact on the mortgage costs
Many borrowers, when applying for a mortgage in a bank, decide on the longest loan period, i.e. 35 years. It turns out to be a big mistake, because such a long repayment period has a significant impact on the amount of housing loan costs. Of course, not all consumers can afford to pay their financial liabilities shorter because they do not have enough money.
Mortgage insurance increases the amount of costs
It is worth noting that usually during the credit procedure, banks offer the customer the option of buying at least one insurance, i.e. real estate insurance, unemployment insurance or life insurance. It should be remembered that buying a policy will significantly increase the cost of our mortgage. If we already have insurance or simply do not want to buy it, then it is better not to decide on the bank’s offer.
Grace period and credit holidays – is it profitable to use them?
Both grace period and credit holidays are financial solutions that are becoming increasingly popular among borrowers. In the event that we decide to suspend capital repayment and pay interest, or suspend loan installments altogether, then mortgage costs can increase significantly. It is better not to forget about it!
Mortgage cost – how to lower it?
What can you do to reduce your mortgage costs? First of all, the above-mentioned aspects should be carefully analyzed and the conditions favorable to us agreed with the bank. The cost of this type of financial liability can also be reduced by using other factors. One way you can also refinance your mortgage, but there are less radical steps. Below we present their full list and explain them in detail.
- comparing mortgage loan offers – by analyzing several mortgage loan offers we will find out which of them is the most advantageous for us,
- negotiating the terms of the loan agreement – in this way we can get a lower mortgage cost, but you have to remember that not every bank will be willing to negotiate.
- using the Cross-sell solution – which involves the exchange or sale of additional financial services, i.e. insurance, credit card or bank account, in exchange for a reduction in the loan margin or a lower commission for granting a financial liability,
- resignation from the so-called notary tax, i.e. an entry in the land and mortgage register and the cost of the property purchased by a specialist who works for the bank where we are applying for a mortgage,
- analyzing the total cost of credit – if in doubt about credit costs, it is worth checking all the factors that may affect it and consulting them with a bank employee.