Where to get your own contribution? This problem is a nightmare for many people who dream about their own apartment. It is required, for example, when taking out a mortgage, which is often considered the best solution.
However, there is an alternative – you can take a loan with no own contribution required and start repaying it immediately. However, this is associated with higher interest and a longer repayment period.
The growing importance of own contribution
Keeping interest rates low encourages Poles to take out mortgage loans. Unfortunately, many of them can’t afford the required own contribution, which has been 10% since January this year. housing value and will grow. At the beginning of next year, this requirement will increase to at least 15%, reaching 20% in 2017.
Saving – a good introduction to credit
Regular loan repayment is like saving – from time to time we try to deposit the amount in a piggy bank or a special savings account. Because if we can’t save regularly, how do we imagine paying back the loan for 20 or 30 years? Being able to collect the required own contribution is a sign of good home budget management.
For a year or two, let’s try to postpone 500 or 1000 dollars from the monthly payment and put them into a savings account, for example. Let’s check how we live with it. We intend to do exactly the same for the next years, with the difference that then the money will go to the bank’s account to repay the loan.
Instead of throwing yourself deeply into installments, it’s better to check your options slowly. If you have never analyzed your home expenses, it may seem that we can handle, for example, an installment of up to USD 1,500, and in practice, it may turn out that we can hardly save USD 1,200. We should remember that in the case of saving money we can lose our belt, while the bank will not be satisfied with half the installment.
A large own contribution means a lower interest rate
The more money you pay when buying an apartment, the smaller the loan we will have to take. And the converter is ruthless here – each subsequent USD 1000 borrowed is, according to calculations by Fine Bank, USD 1400-1800 to be given, i.e. an additional USD 400-800 of interest.
Customers with higher own deposits are offered lower interest rates on loans. In the case of a 30-year loan in the amount of 270 thousand. USD for a flat worth 300,000 USD (i.e. 10% of own contribution, i.e. USD 30 thousand), currently the average margin is 2.24% At 20 percent own contribution, i.e. 60 thousand contributions, the loan will amount to 240 thousand. USD and the margin is already 2.07 percent.
This seemingly small difference of 0.17 percentage points over the entire 25-year loan will be worth about USD 7,500. This is only about interest. Of course, in addition, over USD 700 for each subsequent USD 1,000, i.e. well over 20,000. dollars.
A larger own contribution means less security
The best collateral is an own contribution of 20%. Currently required is 10 percent. the value of the apartment, which causes some banks to charge borrowers an additional cost – ensuring low own contributions. Currently, it is usually collected as a temporary increase in the standard margin by 0.2-0.3 percentage points.
With a loan taken out for 25 years, in the amount of 270 thousand USD (real estate value USD 300,000, so own contribution USD 30,000), the insurance will last for about 5 years and will cost about 2–2,5 thousand in total. USD.
An alternative to insurance will be collateral in the form of a blockage of funds on a bank account or a pledge on USD-denominated debt securities of the Treasury or the Capital Lender. But this in practice means that the borrower has these funds, just does not want to involve them in the loan.
We can spend the accumulated savings on our own contribution, renovating a new apartment or use it as a financial pillow when we fall victim to unforeseen situations, such as job loss. Ideally, they should reach six times your monthly expenses, which means you can survive six months without income.