 Important factors to consider when applying for a home loanThe choice of a home loan depends on the client’s needs and expectations and no single home loan will suit everyone. The following factors should be taken into account: the client’s financial resources, the purpose of the loan and the expected period of its repayment.
Before signing any documents, read carefully through the regulations and fee schedule. In the case of a foreign-denominated loan, it is worth having a look at the foreign exchange rates table to see whether there are large differences between the currency ‘buy’ rate and the ‘sale’ rate and the basis on which the bank determines them. It is also worth considering the required collateral. Does the bank require an assignment of your life insurance or taking out a life insurance policy, in addition to the mortgage?
When choosing a loan, you should pay attention not only to the interest rate or the bank’s commission but also to other fees you may be required to cover when repaying the loan. The basic factor to analyse is the real cost of credit, or the amount of money earned by the bank on the loan. Some banks apply fairly high mortgage repayment fees, particularly in the initial period of repayment, so as to keep the borrower from moving to another bank through the so-called refinance loan (which is a loan taken out at another bank in order to pay off the initial mortgage loan). It is also worth checking the possibility and cost of earlier loan repayment and of conversion of the loan if it is denominated in a foreign currency. When signing a loan agreement, find out whether the bank offers loan holidays or a grace period, and if it is necessary to deliver documents confirming your income.
Furthermore, it is important to determine in what manner the loan’s interest rate may change and when it will happen: every three months, every six months, every year or once in two years etc. Are all instalments the same amount or do they decrease? The answer depends mainly on the resources and attitude of the borrower. You should decide whether you prefer to pay a fixed monthly amount throughout the entire loan period. Then the amount of repayment is lower at the beginning (first four to five years) as compared to the decreasing instalments. Or perhaps you would rather start repayment with larger instalments as compared with fixed ones with the knowledge they will get smaller in time.
The next question is which loan currency to choose. Every borrower must determine whether he prefers to pay smaller instalments and be disposed to exchange rate fluctuations, or pay more and be exposed to no currency risk and enjoy the prospect of lowering interest rates for loans denominated in zloty (and decreasing instalments).
Another important issue is to check how the bank perceives your income and the manner in which your credit rating will be calculated. This is the starting point for the search of the best home loan offer.
The wisest solution is to use the help of a loan broker. It is their task to provide an unbiased choice of a loan and to select the best offer to suit the client's needs and expectations. Prepared by: Oktawian Momot – Doradcy24 S.A.
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2010-09-03 |
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3.0895 |
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