Transfer of the mortgage to a cheaper bank - how does it work in Poland?

 

Recently, many mortgage owners could've been offered a change from variable to a 5-year fixed rate. While it was and still is an option to consider, there is also an alternative way to address the current situation in the market, with potentially more tangible and long-term savings in mortgage cost.

 

Since 2012, which was the peak of the previous rate-hike cycle, the base rate in Poland was continuously going down, and when the base rate is going down, the WIBOR (Warsaw Interbank Offering Rate) follows. As WIBOR is, next to the bank's margin, a factor shaping the bank's profit from the capital lent via a mortgage, when it was going down, banks were gradually raising their margins to keep desired profitability.


The situation changed in October, as due to the inflation crisis, the Monetary Policy Council started a rate-hike cycle once again. With the base rate growing (and WIBOR with it), the maximum creditability of the customers went down significantly. The reason is that the higher the yearly interest rate, the higher the monthly payment for the same original amount of the mortgage, which leaves less disposable income (as per the banking rules in Poland, the debt-to-income ratio cannot exceed 65%). The situation got even worse on the 1st of April, as the Polish Financial Supervision Authority (KNF) has obliged the banks to use an even harsher approach toward mortgage applicants - for example, the DTI ratio is now 50%. That leaves the banks with a smaller pool of potential new customers.


On top of that, with growing WIBOR, banks' profitability accelerated, which gave space to cut their margin. Last year, before the rates started to go up, the lowest margin we could negotiate for the customer was around 1,7%, while the whole market average margin stood at circa 2,5%. Now, the banks offer 1,7% (or lower) even before the negotiation. Because of that, it became potentially profitable to move the mortgage to another bank offering a lower margin - the process called refinancing. As usual, let's see it based on an example.


We have customers who took a mortgage five years ago with a 2,5% margin. The current capital to be repaid stands at 500 thousand PLN with 25 years of repaying left. The customer decided to move their mortgage to another bank that offered 1,7% of the margin. With the WIBOR3M currently at 4,92%, customers' monthly payments due to this change went down from 4002.58 to 3770.08 PLN, and the total remaining cost of their mortgage from 1,200,774 to 1,131,024 PLN, summing up to 69,750 PLN of savings.


While the base rate (and WIBOR) will go down again, as many times in the past (please see our latest article), the lower margin and savings customer got with the mortgage transfer will stay. Future lower rates will also mean higher margins, so the current situation, even though challenging, might prove as a window of opportunity to cut the cost of the mortgage for its whole length, or at least neutralize the currently higher expenses.


Feel welcome to query us about your existing mortgage and explore potential savings in your specific case.


Best regards,
Loan-brokers.pl Team

 


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