How to make an early repayment of the mortgage in Poland?

Most of our customers ask us at different stages of the mortgage process about what the early repayments of the loan look like in Poland. Hence, we decided to break it down with proper analysis.

Let's start from the beginning. As per Polish law, specifically the bill from 23rd March 2017 regulating the mortgage, customer has the right to repay their loan in full or partially at any point of the agreement. In other words, banks cannot deny you the possibility of repaying the loan early.

However, even though banks will not block you from the early repayment, some try to secure their interest by including the early repayment fee in the mortgage agreement you sign. You need to understand these fees before applying at a given bank. The law regulates the mechanism of the early repayment fee to some extent - banks cannot charge the customer more than 3% calculated from the capital repaid earlier than as per the repayment schedule, and they cannot do it for longer than the first three years of the mortgage running.

Repaying the mortgage fully is straightforward - it closes the mortgage agreement and cancels any interest or additional fees you were supposed to pay in the future. On top of that, in some cases, the bank will need to proportionally return some fees charged upfront, like commissions, etc.

The partial repayment requires a more detailed analysis. Essentially, whenever you make a repayment exceeding the monthly installment agreed with the bank, it results in new calculations of the principal-to-interest and subsequently requires you to choose between 2 options:

1. To keep the original mortgage period and lower the monthly installment amount.
2. To cut the mortgage period and keep the original monthly installment amount.
    

We will now check based on potential scenarios to understand which option brings more savings.

SCENARIO 1

Ricardo has a mortgage with a remaining principal of 500 thousand PLN, 300 months of the mortgage period left, and a current 7% interest rate. He decides to overpay the mortgage with 10 thousand PLN. As mentioned, there are two options to choose from, and the results of each would be as follows:

1. The mortgage period remains the same, and the monthly installment goes down from 3533,90 PLN to 3463,13 PLN - the total cost of interest changes from 560168,80 PLN to 549009,98 PLN, meaning that the move gave 11158,82 PLN of savings.
2. The mortgage period gets shorter by 15 months, and the monthly installment remains the same - the total interest cost changes from 560168,80 PLN to 515608,34 PLN, meaning total savings of 44560,45 PLN.
    

SCENARIO 2

Maria just took a mortgage of 600 thousand PLN for 25 years, at a 6,5% rate. She decided each month to overpay 500 PLN on top of the payment required by the bank. She will also get two options to choose from, with the following results:

1. The mortgage period remains the same, and the monthly installment goes with around 7 PLN with each PLN repayment (starting amount - 3792,11 PLN) - the total cost of interest changes from 765266,93 PLN to 659062,34 PLN, meaning that the strategy gave 106204,59 PLN of savings.
2. Maria decided to shorten the mortgage period each time she overpays 1000 PLN and to keep the original installment amount - it got shortened by 98 months overall - the total interest cost changed from 765266,93 PLN to 524593,06 PLN, meaning total savings of 240673,87 PLN.
    

As we can see above, it always makes sense to make early repayments, even small ones, as the savings on the total mortgage cost can mount to significant numbers. Also, in any scenario, it turns out that it is more beneficial to shorten the mortgage period than to lower monthly installments.

Hopefully, the above analysis helped you understand how mortgage early repayments work in Poland. In case you took or are looking to take the mortgage, we hope the content of this article will become handy as many times as possible.

Best regards,

Loan-brokers.pl Team

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