When borrowing money from the bank, we should take into account the fact that we will have to pay appropriate fees related to lending. They apply to all types of financial liabilities, regardless of whether we take out a mortgage, cash or car loan.
Credit costs can be divided into those related strictly to credit, i.e. interest and non-interest, collectively called bank charges, and those not related directly to the liability, i.e. credit-related or non-bank costs. Let’s check what they are and what cost components they include.
What are the loan-related costs?
Loan-related costs, which are not directly related to the interest rate on the liability or the amount of monthly installments and the commission for joining the loan, may include up to about 15%. amounts of the liability incurred. Loan-related costs cannot be avoided in this case.
Most often, banks do not indicate the amount of credit-related costs in loan offers, which does not mean that they do not charge the customer.
Such costs include:
- preparation fee and commission – initial costs of the loan,
- valuation costs of the subject of the liability collateral – e.g. real estate valuation costs,
- insurance costs,
- costs of using cross-selling at the bank,
- court and notary fees.
They definitely mean that the borrower must reach deeper into his pocket.
Loan-related costs with a mortgage
A mortgage is a financial liability given exclusively by banking institutions. Banks make such loans available mainly to customers who want to finance the purchase of real estate or building a house in this way.
This is a specific type of banking product that requires customers to have at least a 20% own contribution, as directed by the Polish Financial Supervision Authority. Part of this contribution can be replaced by using a low own contribution for this purpose, which, however, automatically increases the mortgage loan-related costs.
What costs do we have to take into account when taking out a mortgage? These are bank-related credit costs related to fees charged by the bank and non-bank costs, i.e. amounts due to all institutions to which the client pays fees due to incurring liabilities.
Loan-related costs are borne by the borrower to various institutions, and not only to the bank. It can be said that the loan-related costs of buying an apartment also include expenses for the court when establishing a mortgage on the subject of security or expenses for a notary public when concluding a notarial deed for the sale of an apartment.
Bank loan fees
The first credit-related fee that a future borrower may be forced to pay in a bank is the cost of issuing the loan promise. The promise is a bank promise that a person can actually get a loan of a certain amount. It gives confidence that the buyer will have the funds that will allow him to conclude the right contract in a timely manner.
The next payment in the case of a mortgage is related to the valuation of the property or inspection carried out by the bank in an apartment or house, which are to be used as collateral for the loan repayment. The borrower must bear such a cost before he receives from the bank a decision, not necessarily positive, on obtaining a loan.
For joining the commitment or granting a loan, the customer bears further borrowing costs – in the form of commissions. It happens that the bank makes it possible to conclude a mortgage contract or negotiate the amount of the credit margin if the customer uses the so-called cross-selling, i.e. selling several products at the same time, e.g. from a mortgage, personal account, and credit card.
If a customer takes a foreign currency loan in a bank to buy real estate, then he has to take into account the around-credit cost in the form of a currency spread. This is the difference between the buying and selling rates of a given currency.
Fees for credit with a notary public
Buying a flat or house requires the form of a notarial deed. That is why when purchasing real estate, including a mortgage, notary costs should be taken into account. The notary will charge a fee for preparing the notarial deed and for its copy.
If the client so wishes, the notary public may apply on his behalf to the court for entry into the mortgage, but notary fees are also charged for establishing the mortgage.
When applying for a mortgage, the requirement is to establish collateral in the form of a mortgage entry in the land and mortgage register. This is done in court, which is why the court costs, i.e. the costs related to credit, include:
- payment for entry in the mortgage land register,
- a fee for establishing a land and mortgage register, if it has not already been established.
Fees at the tax office
Non-bank related credit-related costs are also paid at the tax office. The buyer of real estate must pay tax on civil law transactions, so-called PCC. This is a mandatory cost directly related to the transfer of ownership of the property.
The exception to the PCC tax rule is when a flat or house is bought from a developer and he issues a VAT invoice. Then you can take advantage of the tax exemption.
Fees at a real estate agency
If a customer uses the help of a real estate agent when purchasing a flat or house on credit, he must pay a fee for his mediation in many cases.
The commission charged by real estate brokers to buyers and sellers of real estate is usually expressed as a percentage and calculated on the price of the flat. It can be a few percents.
Fees with the insurer
The loan can be insured, which is usually the case with mortgage loans. The customer must therefore regularly pay insurance premiums to the insurance company. The most commonly used insurance include:
- property insurance against fire and other random events,
- life insurance,
- unemployment insurance,
- insurance against loss of ability to perform professional work,
- insurance of low own contribution – if the client own contribution is lower than the required 20% loan amount,
- bridging insurance – operating until a mortgage has been entered in the land and mortgage register.
Amount of credit-related costs – what is it?
The sum of the costs related to mortgage loans is an open question. Banks have different price lists when charging fees. It is similar in the case of insurance companies that sign insurance contracts with the borrower. What are the loan-related costs?
Banks charge a fee of not more than USD 400 for a promise of credit, although there are also those that issue it free of charge. The fee for the valuation or inspection of real estate ranges from 0 to 600 USD. The bank commission for granting the loan depends on the bank’s policy and the level of collateral for the loan.
It may amount to several percents of the loan value. The currency spread depends on the bank granting the foreign currency loan and can reach even 10%. Court-related borrowing costs are not high – the fee for entry in the land and mortgage register is USD 200, and for setting it up – USD 60.
It may happen that you will also need to cross out the mortgage established by the current owner – it costs USD 100, but it is usually covered by the seller of the apartment, not the buyer-borrower.
The amount of the notary fee charged when concluding the notary deed of purchase of real estate depends on the size of the apartment, its location, and at the same time the provisions of the Act on maximum notary rates. With the purchase of real estate from a natural person, also with a loan, it involves a PCC tax of 2%. transaction value.
The commission for brokering a real estate agent when buying a flat is usually 2-3 percent. the value of the apartment. If we want to quickly calculate potential borrowing costs, an online calculator will help us.