Early repayment of a mortgage is not always profitable. The borrower may reserve a disadvantageous commission in the contract. So when it pays to pay off the commitment earlier?
Pursuant to the new Mortgage Loan Act of 23 March 2017, the maximum commission that a borrower can collect in the event of early repayment of a financial liability is 3% of the repaid amount. The Act also says that the commission rate may not exceed the total amount of annual interest charged on the repayment of the debt and that it may be collected only within 3 years from the moment of signing the contract.
Earlier loan repayment – how can you pay off the liability?
The loan commitment can be repaid in two ways:
- Total, early repayment – a solution that requires a large cash inflow, but allows for large savings and reduces the time of charging interest
- Repayment of a higher installment (than it results from the contract) – this solution allows you to shorten the time of charging interest and does not constitute a heavy burden for the borrower’s portfolio. During the duration of the loan agreement repayments can be made in an amount higher than that resulting from the repayment schedule, overpayments are counted towards the total repayment
Early repayment of the loan – examples of commission rates
In order to make early repayment of the loan, you must submit an order at the branch of the bank with which the obligation has been made. Commission rates in the case of early repayment of liabilities may be from 1 to 3% of the repaid amount . In the case of Deutsche Bank, if we make early repayment of the loan within 3 years of signing the contract, the bank collects a commission of 2% of the repaid amount.
Alior Bank SA requires the Borrowers to submit an instruction in a correspondence form or at a bank branch prior to the overpayment, most of the loan forms offered by the bank can be repaid earlier without additional costs. Similarly, Santander Consumer Bank enables its clients to make a full or partial repayment of a loan / loan earlier than the date of payment of the last loan / loan installment.
The Borrower should inform the Bank about the intention to repay the loan at least 3 days before it is made. Early repayment is charged with a commission of 1 to 1.5%, depending on the contract, in some situations you should also pay the costs of annexing the contract in the amount of PLN 30.00.
Is it worth repaying the loan earlier?
Until now, banks have independently established the principles of early repayment of mortgage loans, many of them have been charging commission for several years after taking out a loan. Under the new law, after three years from the repayment of the obligation, no fees can be charged. Earlier loan repayment is therefore more profitable than before the entry into force of the law and allows reducing the cost of borrowing.
This solution is unprofitable for loans with a fixed interest rate. In such a situation, the fee may be charged in the whole period in which the interest rate applies. (Kw)