When we take out a mortgage, we always analyze its price and often include only interest on the borrowed amount. However, the mortgage is an extremely complex product, the price of which consists of many factors. Loan and borrowing costs can be divided into two categories: mortgage costs and real estate purchase costs. Unfortunately, some of them cannot be avoided in any way.
Credit – what do you pay for?
Commissioning commission, life insurance, unemployment insurance
These three types of security are very often interchangeable. In many banks, the commission is interchangeable with life insurance or unemployment insurance. Under current law, the bank cannot force the customer to conclude an insurance contract. However, banks are cleverly circumventing this provision, differentiating their credit offers in terms of attractiveness precisely according to the parameter of additional products. In other words, the customer can count on a smaller margin or resignation from other costs when they opt for additional insurance (however this is not mandatory).
Bridging insurance (credit insurance)
Bridging insurance is one of the compulsory costs that actually gives the borrower nothing. Such security only protects the bank’s interests. It consists in insurance of the loan until the bank is entered as a creditor in the 4th section of the Land and Mortgage Register, i.e. until the entry of the mortgage (or mortgages). We pay it in the form of an increase in the existing interest rate by 0.5% – 1.5% or in the form of a fixed, monthly amount being a fraction of the entire loan. The duration of this insurance depends on the legal status of the apartment.
If the property has a land and mortgage register at the time of purchase, the insurance will last for a very short time – approximately 1 to 2 months. If you also need to set up a land and mortgage register, this period is extended by about two weeks (depending on the speed of the court’s action). When the loan is taken for the purchase of a flat from a developer, where the work progress is low, the period of paying this insurance can increase dramatically. All because the court can make such an entry only after the ownership of the apartment is transferred to the borrower, that is, only after construction and complete commissioning. If we buy the proverbial “hole in the ground”, then the period of such insurance may be over a year.
Real estate insurance
This fee is difficult to classify as credit-related costs, because everyone who thinks in a forward-looking perspective will insure their apartment or house from at least basic risks. The more that the bank imposes the condition of insurance only against fire and other random events (so-called “wall insurance”). It should be remembered, however, that unfortunately in most cases the bank requires the assignment of rights from such policy to its benefit for the entire duration of the loan. This means that potential compensation will be due to the bank. Then the payment of compensation is made not to the insured, only to the bank’s account. Of course, in this situation, the bank reduces the loan amount exactly by the compensation funds paid by the insurer.
Low own contribution insurance
When buying a flat or house with a low down payment, the bank will impose insurance on the missing down payment. From the customer’s point of view, this fee is an additional expense because it only protects the interests of the lending institution. Nevertheless, it is a constant cost used by almost all banks. Most often 20% of the investment value is hedged in this way. Of course, any amount that customers themselves contribute to the purchase or construction, proportionally reduces the value on which insurance is calculated. It should be remembered that if the mortgage collateral of the loan is different to the property being purchased, then insurance is its value.
Real estate appraisal or inspection
The bank imposes an obligation on the buyer to evaluate the property. The borrower must agree to an internal valuation made by a bank employee. Here, the cost ranges from PLN 0 to even PLN 1,500. Most often, however, it is a cost, oscillating around the amount from 100 to 600 zlotys.
The cost of additional products
Indirect costs of obtaining a loan, which may additionally contribute, e.g. to lowering the margin or reducing the commission, are: setting up an account, an obligation to transfer a salary or declared amount to the account (which is usually the equivalent of e.g. income from business activity), payment for tranches paid loan (only if the loan is not paid out once, and this almost always happens when crediting the construction of a house or buying an apartment in the primary market).
The notary fee is a fee depending on the amount of the transaction (for example: buying a flat for PLN 200,000 we will pay a notary about PLN 1300 – 1600). In the case of notary fees, the law sets only the maximum rate that a notary public may charge. This means that we can bargain the amount with a notary public of our choice or write a notarial deed to transfer ownership of property to another, cheaper official.
Tax on civil law transactions
When buying on the secondary market, the tax on civil law transactions is 2% of the amount of the transaction (payable with a notary public when writing a notarial deed to transfer ownership of real estate). However, if we buy a new apartment from a developer or housing association, we do not pay this tax. Entries in the Land and Mortgage Register + its possible establishment . The cost of establishing a Land and Mortgage Register (if the apartment does not have one) is PLN 260 together with the owner ‘s entry. In the case of credit, there is also the cost of entering one or two mortgages (costs as in the cases described above).