Credit margin – what is it? What determines the height?On June 8, 2019 by admin
May 23, 2019 The loan margin is part of the interest rate on the loan, including the mortgage rate. It is the bank’s real income from signing a bank loan agreement. In the banks’ offer, next to the loan with a low margin, we find a loan without a commission, but with a higher margin. Which solution is more profitable when we decided to buy an apartment on credit? In the article, we explain all issues related to the bank’s margin. We invite you to read!
What is the mortgage margin?
The mortgage margin is a real value that a bank earns because of granting a loan. As we have already mentioned, it is a component of the interest rate on the loan, and therefore affects the cost of the mortgage, which we take in connection with the purchase of an apartment. The interest rate also includes the base rate, which we will present in the form of a short scheme:
In the case of loans in PLN, the base rate is Jabank, or Warsaw Interbank Offered Rate. The largest banks in Poland in terms of assets are involved in determining the Jabank value. The Jabank rate may change over time, affecting the reduction or increase of the installment amount. Low Jabank makes the mortgage loan cheaper.
Since the loan margin affects its cost, all issues related to it are very important for anyone signing a mortgage contract. Can the margin amount change? About this in a moment. At the beginning we will consider what affects it.
What affects the amount of the margin?
The loan margin depends on:
- the amount of the mortgage,
- loan purpose. The good news is that mortgages have the lowest margin compared to other types of loans available on the market. The highest margin applies to mortgage loans that we take for any purpose,
- LTV ratio, which is the ratio of the loan amount to the value of the property (or other collateral for other types of loan). If the bank considers that the granting of the loan does not involve a lot of risk, the LTV ratio is low. Therefore, when taking out a loan for an apartment, it is worth accumulating the largest possible own contribution and thus reduce the loan margin. An own contribution loan can help you achieve your goal. Thanks to it we will make dreams of our own nest come true!
- credit history and creditworthiness. Good financial standing allows for negotiating better loan agreement conditions,
- bank’s commission, i.e. a one-off amount calculated for granting a loan. The bank’s margin and commission are closely related, which we will explain in detail,
- additional banking products that we decide to buy together with taking a mortgage. The bank may offer us a preferential margin provided that you purchase a credit card or set up a bank account,
- use the services of a given bank in the past. If we have been a bank customer for some time, this one may offer us a lower margin.
As you can see, many factors influence the amount of the margin. Therefore, let’s read the loan agreement carefully and do not be tempted by catchy slogans! When one fee decreases, the other may increase – be careful. This caution applies to all types of loans, including cash loans and consolidation loans.
Can the margin amount change?
When buying an apartment on credit, we take the issue of costs very seriously. The loan period can be up to 35 years, which means a constant weakening of the household budget. Early repayment is possible, but hardly anyone can afford it. That is why it is worth answering the question whether the margin can change and increase the mortgage installment?
The margin rate specified in the contract is constant and unchanged throughout its duration. However, there are some exceptions when the bank can change its amount.
The margin will change when:
- we will give up related products, e.g. insurance or ROR account, to which we have transferred the remuneration. We received a better loan offer only because we decided on additional products. Since we are giving up them, the bank no longer has to provide us with preferential conditions. Especially if we did it before the required period of use,
- the promotion will end, which entitled us to a lower margin. The low margin may apply, e.g., only to the first 24 months of the loan duration – after this period, its amount increases to the limit set in the contract.
All circumstances that may change the margin must be included in the signed contract!
Can you influence the amount of the mortgage loan margin? Yes, e.g. by caring for a good credit history in advance or accumulating a high own contribution, as noted in the previous paragraph.
Margin and commission. Loan with a low margin or no commission?
In the thicket of mortgage offers it is not always easy to find the right one, the more that individual loans differ in terms of the contract. Is it better to decide on a mortgage with a low margin but high commission or a loan without a commission but with a high margin? Ideally, each of these values should be as low as possible, but this is unfortunately not possible.
Let’s choose a loan with a high commission but a low margin when we do not think about paying back the loan early. The loan margin applies to each installment. By choosing a lower margin, we can count on a lower interest rate, and therefore also a more attractive loan installment.
A loan with no commission, but with a higher margin will be better when you want to settle your debt quickly. In the case of mortgage loans, the commission is very high. By paying back the loan ahead of schedule, the margin will not be such a big cost, so we will only save on it.
A commission-free loan is also a common offer for cash loans. However, as with mortgages, no commission means a higher margin. To make sure that the selected cash loan is actually an attractive proposition for us, we will carefully analyze all fees.
The cheapest mortgage at your fingertips
When looking for the cheapest mortgage offer, it is worth checking the current listings. The same applies to cash loans. By analyzing the cash loan ranking, we will quickly find out which bank to sign the contract with to receive a cash injection on favorable terms!