Unfortunately, hardly anyone in Poland is able to buy their own apartment for cash. Sooner or later many people decide to take out a loan for their own apartment, thus binding for a very long period with a specific bank. This is a huge risk not only for us, but also for the bank. After all, we can’t say if we’ll still earn the same level in five, ten or fifteen years from now.
It may also happen that we are affected by some accident or other unforeseen difficulties. This is a problem not only for us, ie those who will worry about interest, penalties and other consequences of late repayment. Lending to a bank is a way to earn money – if we can’t pay the installments, he’ll lose it. Therefore, the most serious and the most important form of housing loan security is generally a mortgage. Just what is a mortgage?
What is a mortgage?
The answer to the question of what a mortgage is not that difficult. A mortgage is a property right that is imposed on a specific property – usually the one that we buy or build using money from a loan. In practice, this is done through an appropriate entry in the land and mortgage register of the property.
What does this give the bank? If we do not pay the installments on time, he will be able to take over the house or apartment from us and sell it later to cover the loan. This is obviously not the optimal solution for either the borrower or the lender. The borrower eventually loses his dream home, and the bank usually sells it at a significantly reduced price. It is in the interest of both parties that this should not happen.
Pros and cons of a mortgage
The disadvantages of the mortgage are quite obvious – for customers it is a potential threat, and the bank will not always earn as much as he would like thanks to it. Contrary to appearances, the mortgage also has its advantages, which in most cases far outweigh the disadvantages. As you know, the mortgage usually amounts to a very high amount and extends for many years. Material security, and more specifically a mortgage, significantly reduces the risk taken by the bank when granting us a loan. Therefore, it is able to offer customers much more attractive terms – above all lower interest rates and commissions. Due to such a long repayment period, even at a low interest rate, it often turns out that we pay only gigantic interest for the first dozen or so years.
It is hard to imagine how expensive a loan would be if interest rates were higher and a mortgage would not be imposed on the property. In most cases, there is no need to use it, so you can say that the borrower has a cheaper loan without any consequences. Although the bank will earn less on interest, it reduces the chances that it will lose on granting a loan. So you can consider a mortgage as a kind of compromise between the bank and the customer – the bank reduces its risk and in return offers the customer a lower total cost of credit.