Loan with a low own contribution? The repayment will be greater than you think

Each zloty of the contribution less is PLN 2 to be given? Sounds like anti -mortgage anti -advertising? Experts of the RynekPierwotny.pl portal answer the question asked by the editors of “Wprost”. They checked and calculated it exactly. It turns out that every zloty of less own contribution means much higher later credit costs.

– The need to collect a minimum own contribution, which often exceeds PLN 50,000, is a problem for many potential buyers of “M” – notes Andrzej Prajsnar, an expert of the RynekPierwotny.pl portal.

It indicates that although taking a loan with a minimal contribution allows you to meet the housing need faster, it also results in an increase in costs.

Expert: “There is no question of PLN 1 refund for PLN 1”

As the expert notes, the topic of costs related to the low own contribution is currently current not only because the requirements for its amount increased strongly after 2020 (due to the increase in the prices of the area).

The analysis prepared by the experts of the RynekPierwotny.pl portal also shows that the level of interest rate of the housing loan is of great importance. The high interest rate (even temporarily) means that you need to give the bank much more in connection with the low own contribution.

If we consider the situation of an example borrower who bought a flat worth PLN 500,000, making a 10 % own contribution. Instead of 20 percent, it is an increase in the amount to be given to the bank as a result of reducing its own contribution by each PLN 1.00 will be:

• PLN 1.72 – assuming an unchanging interest rate at 4.00 percent. for 30 years,

• PLN 2.16 – assuming an unchanging interest rate at 6.00 percent. for 30 years,

• PLN 2.64 – assuming an unchanging interest rate at 8.00 percent. for 30 years.

The table below contains additional information on the adopted calculation assumptions.

The interest rate on the loan matters

As experts note, setting up a fixed interest rate for 30 years is a far -reaching simplification, but it allows you to understand the impact of which interest rate of the loan exerts the financial consequences of low own contribution.

– An example of a borrower contributing to a minimum contribution (10 %) instead of twenty percent, for each zloty of the contribution less in the future will pay PLN 1.72 (without including inflation). In other words, with an interest rate of 4.00 percent The borrower will pay PLN 1 in installments and an additional PLN 0.72 as part of credit costs – explains Andrzej Prajsnar.

The converter analyzed in the table (for a given interest rate and repayment period) is independent of the value of the apartment purchased.

– For example, the conversion rate at PLN 1.72 for each zloty of the contribution less applies to the purchase of an apartment worth PLN 400,000, PLN 500,000 or PLN 600,000. In a quota terms, the increase in the sum of installments associated with the lower contribution will of course be proportional to the value of the loan and the apartment purchased. In the case of premises for PLN 400,000, 10 % insert Instead of 20 percent results in the amount to be given to the bank greater by PLN 68,748. For “M” costing PLN 600,000, an analogous result is already PLN 103,222 – explains the expert.

Low loan contribution – in practice the conversion factor can be even worse?

As RynekPierwotny.pl experts emphasize, the effects of a small own contribution can be even more severe for the borrower.

– Remember that the lower contribution sometimes results in an increase in the interest rate on the loan. Rate increase from 4.00 percent up to 4.20 percent with a own contribution of 10 percent Instead of 20 percent It makes you have to pay PLN 2.09 for PLN 1 for PLN 1 instead of PLN 1.72. The conversion factor for the person making a lower contribution also worsens the extension of the repayment period. If the credited loan had a repayment period of 25 years instead of 30 years, then at 4.00 percent. The borrower for his own contribution by PLN 1 would be “punished” with the sum of rallies higher by PLN 1.58 instead of PLN 1.72 – says Andrzej Prajsnar.

Do the above sample calculations provide any positive information for people with a low own contribution?

– In real terms, additional costs for such borrowers are reduced by future inflation. It is worth remembering, however, that in conditions of high and long -term inflation, the interest rate on housing also increases, which is definitely not good information for borrowers – sums up the expert.