Before you decide on a mortgage, it is worth considering many important factors, such as the interest rate or the bank’s margin. These two factors will influence the installments we will have to face.
So it’s good to make an informed and prudent credit decision. How then does the bank calculate the margin in the mortgage loan and how does it affect the interest rate on the loan? Let’s see.
What determines the amount of the credit margin?
One of the elements of every mortgage is the margin, which affects the amount of the installment. What is the margin? It is nothing other than a bank’s profit from borrowed money.
The higher the margin, the higher the mortgage interest rate.
The amount of the credit margin can vary considerably depending on several factors. The mortgage margin, of course, depends on the loan amount applied for, but also on the borrower’s own situation. Below are the factors that affect the amount of the credit margin.
If the person applying for a mortgage has a high monthly income, the bank will assess its creditworthiness more favorably. Such a borrower has a chance to lower the credit margin. However, if our income is low, the bank will judge us unfavorably and certainly will not lower the margin, and perhaps even not grant us a mortgage.
Type of employment of the borrower
Employees under an employment contract have the greatest chance of reducing the credit margin, in particular for an indefinite period. This is the surest form of earnings, which in the eyes of the bank increases the credibility of such an applicant. If we work based on a specific task or order contract, the bank will not offer us a profitable margin, and may not even grant a mortgage.
Applicant’s credit history
The credit history includes our current financial liabilities and any loans or advances we have incurred in the past. The bank will pay attention to whether we have paid our liabilities regularly so far. If so, we can count on preferential loan terms and a lower margin. If not, the bank will make a decision depending on the risk we pose. If our credit scoring is low, we may not receive a mortgage. However, if the bank assesses us favorably, past repayments may have a negative impact on the credit margin.
The amount of own contribution
If we have own contribution, we can count on preferential conditions and a lower mortgage margin. In most cases, the higher the own contribution we make, the lower the loan margin the bank will offer us. The high own contribution means that the bank bears less risk by granting us a loan. The lower the risk, the lower margin we can count on. However, if we do not offer the bank sufficient own contribution, we must take into account a higher interest rate on the loan, as well as a higher margin.
Who can count on a lower loan margin?
Who can count on a lower mortgage margin then? Let’s analyze this with examples.
Example one: a borrower who can count on a low credit margin
For example: Bank X will treat a client who has an account and a deposit of 30,000 differently in that bank, and also declares a high own contribution towards the mortgage loan granted, compared to a client who comes for a housing loan, he is not a client of the bank, he is not too high or regular incomes, and also declares no own contribution.
The first customer can count on lowering the loan margin, because the bank, when analyzing the risk of its granting, will usually consider it to be a reliable person. The reduction of the margin in his case will also be affected by the so-called LTV ratio, i.e. the ratio of the amount of the loan granted to the value of the property being credited. Basically, we can see that the better the client’s financial standing, the better the chance for more favorable credit terms. Sounds a bit absurd, but that’s the reality.
Second example: a borrower who will be charged a higher margin
Our second sample client probably won’t get such a good offer as the first one because it is less reliable in the eyes of the bank. In this situation, however, it is worth looking into the offers of other prosperous banks on the market, because you can count on certain preferences, when, for example, along with the loan, you decide to run an account at a given outlet, additional insurance, etc.
Therefore, although it is not possible to calculate the total amount to be repaid yourself, it is worth starting to compare different offers in the mortgage comparison engine . The data provided in the comparison engine are usually the lowest ranges offered by the bank, but this action will allow you to choose, for example, 3 banks to which you can first contact with a request to calculate your creditworthiness and loan amount.
Is it possible to negotiate the margin with the bank?
If we think that our financial standing is stable, then it is really worth negotiating the mortgage loan margin with the bank, as well as other credit terms. Especially that the contract is concluded for several years, and the conditions throughout the duration of the contract will be the same.
It should be emphasized that before you decide on a mortgage, you should first secure a stable job, preferably with a permanent contract. Second, you must take care of your own contribution. Set a goal, set the time needed to achieve it, and then set aside the amount regularly and persistently – the loan will be lower with your own deposit, so it is worth pausing with the loan for a year to later get it on better terms.