MonthFebruary 2020

Mortgage loan or cash loan?

At least one credit obligation is already held by every second adult Pole. The popularity of such products that are offered by commercial banks operating in our country is the result of not only growing financial needs. It turns out that Polish society is enriching, thanks to which we demonstrate proper creditworthiness and we can afford regular repayment of monthly installments.

It is worth emphasizing that the banks themselves consider as reliable customers. Looking at the inhabitants of the entire European Union, we are the most solvent. What’s more, we are still ashamed of our debts, which is why we only incur obligations that we are able to pay on time. Given the debt, we have far fewer than Germany or the Dutch. This fact means that institutions offer us various types of loans on really attractive terms.

Cash loans for any purpose, special purpose loans, and mortgage loans are most popular today. It is worth knowing their detailed characteristics to choose the best commitment, taking into account individual needs, expectations, but also financial possibilities.

Cash loan – a compendium of knowledge

money and cash

A cash loan for any purpose is the most frequently incurred commitment. Virtually every bank that operates in our country offers them. This commitment is given on flexible terms. This means that it is the borrower who determines the value of the financial support he wants to apply for and the duration of the loan agreement.

An important advantage of loans for any purpose is that the borrower can receive the funds obtained from the bank in any way. Most often, such liability is shared, and part of the money is transferred, for example, to repay overdue liabilities, while the remaining funds allow achieving the goals set by the borrower. A

cash loan for any purpose can finance the purchase of a car, renovation of an apartment, purchase of refresher courses or purchase of a dream vacation. There is also no doubt that a loan for any purpose patches a hole in your home budget or is useful in situations of unplanned expenses. It is worth emphasizing that this type of commitment is given with a minimum of formalities, quickly and efficiently.

A further loan is another commitment often used by Poles in cooperation with Alcesteymi institutions. This usually shows slightly better conditions than a loan for any purpose, but it should be noted that it also involves a number of restrictions that the borrower must meet. First of all, the purpose of applying for financial support should be indicated (a special purpose loan may be a mortgage). Most often it is a commitment taken to buy a car, carry out renovation works, buy furniture or household appliances, electronics.

In fact, banks are now offering specific loans in line with the needs of potential customers. The only thing is that the borrower must certify the purchase of the product or service he indicated in the loan application. Increasingly, special-purpose loan funds do not go to the borrower’s account at all but are immediately transferred to the seller.

The bank’s customer is obliged to pay monthly installments. It should be emphasized that, although the limitation, in this case, is the need to indicate the purpose and document the purchase by presenting an invoice, receipt, invoice or sale/purchase agreement, many borrowers choose a special purpose loan.

Banks, by gaining better security in the event of their client’s insolvency, already offer better conditions for such a commitment at the outset. A special-purpose loan is usually simply cheaper than a cash loan for any purpose.

Let us remember that regardless of the choice of credit obligation, each commercial bank operating in Poland requires from its future clients:

  • specific creditworthiness, which is analyzed taking into account the monthly generated income,
  • positive credit history, which indicates the behavior of the potential borrower in relation to the repayment of previous liabilities,
  • correctly completed loan application – today many banks provide applications in electronic form so that the loan can be taken without leaving home.

WARNING! Each bank has its own credit policy, which is why each institution of this type offers different credit conditions. Before applying for a loan, you should check the offers of at least several banks. For this purpose, not only loan calculators are ideal, thanks to which you can calculate the total costs of such obligations, but also rankings that list the main variants of loans and allow you to assess their attractiveness to the needs of individual customers.

Mortgage – everything you should know about him

Mortgage - everything you should know about him

Another obligation, which Poles still apply for in mass, is a mortgage. Although real estate experts confirm that more and more real estate is purchased for cash, the banks themselves do not show a decrease in the number of mortgage loans. It is this commitment that allows you to obtain the financial support necessary to implement investments in your own “M”.

All banks that offer a mortgage must act in accordance with applicable Alcestee law and the so-called Recommendation S. This indicates the conditions and restrictions that must be applied when granting such an obligation. Pursuant to Recommendation S, a mortgage cannot be granted today for 100% of the property value.

The borrower is required to contribute at least 20% of the own contribution. It is worth noting, however, that own contribution does not have to have the form of cash. For those borrowers who do not have such funds, banks offer so-called low own contribution. This can be reduced by purchasing additional Alcesteych products, including a paid Alcestee account, or borrower’s life insurance or property insurance. It should also be mentioned that the own contribution in addition to cash can be expressed as:

A mortgage can be taken for up to 35 years, and its value is on average USD 300,000. It is no wonder that banks require additional collateral in order to minimize credit risk, i.e. the potential insolvency of their client.

Each institution also verifies the creditworthiness of the potential borrower – first of all, the value of earned income and the basis for their generation are taken into account (people working under an employment contract of indefinite duration have the best chance of receiving such an obligation, but some banks also accept commission contracts and running their own business economic); also takes into account your credit history.

If a person who wants to receive financial support for the purchase of the real estate, does not have sufficient creditworthiness, he can take out a mortgage with a third party. Most often, the co-borrower is a spouse, partner or close family member. The mortgage loan process can take up to several months.

What should you choose – cash loan or mortgage?

What should you choose - cash loan or mortgage?

A better loan commitment cannot be clearly identified. Cash loans and mortgages are two different products offered by Alcestee institutions that enjoy the interest of two different groups of potential clients.

A standard cash loan is taken for a shorter time and a lower value

Its provision involves simpler procedures, although banks verify creditworthiness each time. A characteristic feature of such an obligation is also any purpose, and in most cases, the funds obtained can be freely disposed of. Banks also do not require additional collateral.

It is completely different in the case of a mortgage. If such a commitment is given, the funds do not go to the borrower’s account but are automatically transferred to the seller of the property. Such a loan also requires additional security, and most often it is a mortgage entry. Borrowers are also required to make a down payment and although it can be made in various forms, it often becomes a heavy burden for future bank customers.

If you are looking for financial support for buying an apartment, then a mortgage is the optimal solution. Cash loans will be useful to meet other needs, not always the priority ones. The fact that the borrower receives funds means that he can allocate them for any purpose. In the case of a mortgage, one can only talk about buying real estate, both from the primary and secondary markets. Therefore, the choice of a specific liability depends on the individual needs of future borrowers.

Retirement Loan: Home finance plus insurance

The decision to build or buy property is one of the most important in life – and one of the most expensive. Future homeowners are therefore not only recommended to rely on care and expert advice when choosing home finance, but also to make provisions for emergencies. For this purpose, some providers offer a so-called retirement loan, i.e. a combination of building finance and insurance. But is this combination product really worth it?

What is a retirement loan?

What is a retirement loan?

The core of the pension loan is construction finance, which can be adapted very flexibly to the wishes of the interested party. When the interest rate is fixed on the loan, for example, terms of up to 30 years are possible. Interested parties can also choose between two options for the repayment options. On the one hand, a repayment rate of 1 to 10 percent with the option of a special repayment of up to 5 percent per year can be selected. On the other hand, a repayment rate of 1 to 5 percent with a special repayment of 10 percent per year is possible. The following applies to both variants: During the fixed interest period, the repayment rate can be adjusted five times in the selected repayment area without an additional fee.

So far, the pension loan is not a special feature, since the conditions just described can also be negotiated for mortgage loans from other providers. What is special about the retirement loan are two other components that are intended to secure the borrower and his mortgage financing in an emergency.

  • There would be integrated unemployment insurance : in the event of operational – i.e. not self-inflicted – unemployment, the interest payment on the building loan and 1 percent of the repayment will be borne by the provider. Important: The provider only takes over this service for 12 months. If the borrower is still without a job after one year, he still has to pay interest and repayments independently.

  • The second integrated benefit in the pension loan is death protection. If a borrower dies, the provider again pays the interest plus 1 percent of the repayment. This service is not limited in time, but limited to a sum of up to 30,000 USD.

Advantages and disadvantages of a pension loan

Advantages and disadvantages of a pension loan

The retirement loan advertises with its flexibility. In fact, it offers a fixed interest rate of up to 30 years on request, but is no exception with this option. Many other providers of mortgage lending also offer this option. The Wolfdietrich experts point out a rule of thumb here: the longer the fixed interest period, the higher the interest rate – i.e. the cost of the loan. This will apply to the retirement loan as well as to any other construction loan.

The flexibility of the repayment options must be assessed in the same way. The possibility of changing the repayment in the course of the fixed interest period can prove to be useful if, for example, the borrower’s professional situation changes and the repayment is to be adjusted to the new salary. The option of special repayment can also be useful if, for example, an unforeseen capital ends up in the household budget due to an inheritance. However, it should also be emphasized here that these options are not unique features of the pension loan, but can also be integrated into construction financing from other providers – in some cases even cheaper.

The Wolfdietrich experts advise all future property owners to think about securing building finance, for example through occupational disability or residual debt insurance. With regard to the retirement loan, however, it should be borne in mind that it is a combination product. Combination products can be noticeably more expensive than pure home finance. And even if cautious builders accept the possible additional costs in favor of the insurance benefits offered in the pension loan – the components of a pension loan may be cheaper to get from other providers individually. Those interested in loans should check this in any case.

Conclusion: is a retirement loan worthwhile?

Conclusion: is a retirement loan worthwhile?

In any case, it is advisable to think about additional insurance when concluding a building loan to cover the borrower in the event of unemployment or disability, for example. In the case of offers such as the precautionary loan, however, it should be checked whether not only the mortgage, but also the insurance can be obtained more cheaply from other providers. In general, interested parties should always check beforehand with all combination products whether inexpensive individual parts from different suppliers can be combined to create a cheaper overall package.

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