Mortgage in Poland - fixed rate vs variable rate.

Until recently not all banks in Poland were offering a mortgage with a fixed rate - this changed due to a recommendation issued by the Polish Financial Supervision Authority, and now each big bank in Poland does offer this type of mortgage. Let's analyze what the market offers.

A fixed-rate mortgage in Poland differs from what you could experience in your own country. Such a mortgage has a fixed rate for 5-7 years only, and if the overall period is above it, after 5-7 years bank will offer you a new fixed rate for the next 5-7 years - in case you will not agree with it, your interest will change to a flexible rate as per the bank's current offer.

Each bank offers a different fixed rate. Currently (August 2021), the market offers a range of 3,84-5,45% for the mortgages with 10% of the upfront and 3,04-5,25% for 20% ones. This means that when compared to current flexible rate mortgages, for a fixed rate to be profitable, the WIBOR 3M, shaped by reference rate decided by the Monetary Policy Council of Poland would need to reach 1,05% in the lowest fixed-rate scenario (3,04%). However, if the reference rate would reach mentioned 1,05% after a year since the mortgage started and then stay 1,05% for the rest of the five years, this would mean that the customer would be better off with choosing the flexible rate in the first place.

Hence, while simplifying, for the fixed-rate mortgage taken today to be profitable, the WIBOR3M rate would need to reach at least 1,5% within two years. It is possible, however, given how reluctant to raise the reference rate from the current 0,1% level the Monetary Policy Council is, even while the inflation is reaching a level of 5% - most analysts would say that it's unlikely to happen. Due to that, fixed-rate mortgages are only a fraction of the mortgage market at the moment.

While not necessarily profitable, a fixed-rate mortgage does give a customer a certain level of safety, as they can rest assured that their monthly payment won't change during the fixed period. Let's calculate it based on an example.

A customer is taking a mortgage for an apartment worth 750 thousand while offering 20% of the upfront, so the mortgage amount is 600 thousand, and the repayment period is 30 years. The fixed rate offered by the bank is 3,04%, while their current flexible offer is 2,2%. In the first scenario, the monthly payment for the first five years would be 2543 PLN, while the flexible would be 2278, and stay the same until a change in reference rate would happen. As mentioned before, for the 2278 PLN to become 2543, a reference rate would have to reach 1,05%.

While writing this article, we have received an update from the market. The CPI inflation rate for August 2021 jumped to 5,4% - well above expectations. Due to that, some analysts expect that the Monetary Policy Council might react and start raising reference rates already this November. Such predictions will potentially influence the banks to lift their offered fixed rate, especially the ones with the lowest rate at the moment.

We hope this explanation gives you a better understanding of how a fixed-rate mortgage in Poland works. For more do not hesitate to ask us: office@loan-brokers.pl.

Best regards,
Loan-brokers.pl Team

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