26/07/2020 by Jakub 0 Comments
Early repayment of the mortgage in Poland - is it possible?
As many of our customers plan to repay their mortgage sooner than the original period in the mortgage agreement with the bank, we decided to explain to you how it works.
Polish banking law states that each bank must allow customers to repay the mortgage earlier than signed in the agreement, virtually anytime the customer wishes to do so. Moreover, banks can charge for early repayment only within the first 3 years after the mortgage started and the maximum fee within this period is 3%. Currently, many banks do not charge early repayment fees even from the first day of the mortgage.
Repaying the mortgage early obviously gives you savings in nominal terms, as you will avoid paying the interest for the amount you are adding up because it fully covers the value of the property itself. On top of that, due to the European Union directive, after your repayments will lead to closing the mortgage sooner than was agreed originally, the bank should return all additional fees connected directly with your mortgage, as provision or insurance, in a proportional manner. However, please note that you need to apply for such a refund, as the bank is not obligated to return the mentioned costs without your request.
Enough theory. Let’s calculate it based on an example. Customer buys a flat worth 600 thousand zlotys and 450 thousand of it is provided by the bank, the mortgage is for 30 years, the interest rate (bank margin + WIBOR rate) is 4% per year and bank charges provision of 2%. Originally the full cost of the mortgage is 782 412 PLN, of which 323 412 is the cost of interest and 9 thousand as a provision. The customer decides to repay the mortgage in 10 years, which gives the savings of 153 287 PLN in interest and 2/3 of the provision, as 20 years of original 30 got cut off, altogether 159 287 zlotys saved. For sure you noticed that 153 287 is rather a half than 2/3 of the original interest cost. It is because with each monthly payment you are repaying a bit of the loan capital, so interest cost in nominal terms goes lower throughout the mortgage.
It is possible to make additional payments for the mortgage anytime and with any sum. The bank is obligated to inform you about any additional costs of such action. Also, each time you make an additional payment, you have to make a disposition to the bank, whether with the repayment you would like your monthly payment to be lowered or the mortgage period be shortened.
We hope you find this information helpful.
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