Early repayment of a mortgage What do you need to know?
Bearing in mind the fact that, according to the data collected by the Credit Information Bureau, at the end of June 2018, almost every second adult Pole repaid a loan or credit, the information contained in our text may prove to be very useful.
So if you often put the search term ” early mortgage payment and interest ” into the search engine and wonder if you will have to pay a commission for this entire operation, then read on!
When does early repayment pay off?
This is probably the most important and frequently asked question, because, as it turns out, faster loan repayment pays off in many cases, but not in all. Why is this happening? The provisions in the loan agreement we have signed are key. Regardless of whether it is an early repayment of a cash or housing loan, the bank can take out such an event. Protect yourself from what? Of course, before losing income from the interest we pay.
And so, our contract may include a clause that imposes contractual penalties on us for full repayment of the loan ahead of time. Internships are different here, but most often we meet the principle that during the first three years of taking the loan we are charged with additional costs – in the first year they are 3% of the loan repayment amount, in the second year 2%, and in the third %.
After this time, we won’t incur any additional fees. Warning! There are still mortgage offers on the market in which the grace period for early repayment is up to five years, and its amount is determined according to the same principle: in the first year of taking the loan we will pay 5%, in the fifth – 1%. It is worth counting whether it will pay off for us, i.e. whether the benefits of saving on interest on subsequent installments will not be lower than the commission on early repayment of the mortgage . What’s more, the provisions in loan agreements can take various forms, so you need to carefully analyze each of them.
The Bank’s Table of Fees and Commissions, in which we have made a commitment, will also be very helpful here – it is attached to each contract, you can also view it on the bank’s website. And although in most cases it is written with a hated “small print”, it is an absolute necessity.
There are also two very positive information. The first is that the average commission on early repayment of the loan (cash, but also mortgage) is currently from 0.5% to 3% of the value of the contracted liability. Second – that banks are increasingly giving up charging any additional fees.
Early mortgage repayment and interest
If we are interested in repayment of the loan ahead of time, then the biggest benefit in this operation will be for us no need to continue paying interest. We would like to remind you that when deciding on a loan, we repay not only the capital, i.e. the amount that we have actually spent on our goal (flat, house, plot or other needs we have met with the help of a cash loan), but also interest.
And it is on interest that banks earn the most. Analyzing the loan repayment schedule, we see four amounts there: the total amount of the loan taken (already with commission, additional fees, insurance and interest), the amount that will be repayable after paying the given installment and the most important – the amount of the installment and the amount of the installment.