Credit refinancing consists in repayment of an old, usually more expensive loan thanks to the funds taken from another bank, which offer is more attractive and thus cheaper. The lower margin charged by the new bank translates into both the monthly installment we pay and the entire loan. Refinancing thanks to lower loan interest can guarantee considerable savings, which in some cases amounts to tens of thousands of dollars. However, refinancing with a maximum extension of the loan repayment period means that our monthly installment will be much lower than the one paid in the original bank. This, in turn, guarantees a lower burden on the household budget.
Persons who took out a mortgage in USD in the first quarter of 2009 deciding to commit, were aware that the margin on this loan would be about 3 percentage points. Currently, margins at various banks are on average around 1.5 pp, but offers with margins below 1.2 pp are often available. It was more than half less than two years ago. For a loan worth $ 200,000, the difference between the installment of the loan granted in 2009 and the installment of the currently incurred commitment is about $ 200. In the perspective of 30 years, it saves $ 70,000. In this case, refinancing your loan can be a profitable solution for your home budget.
Who can refinance their loan?
Each customer can benefit from refinancing the loan, virtually at any time during its repayment. Theoretically, this is possible even the next day after starting the loan. However, when deciding to take out a new loan to repay an old liability, it is necessary to consider all the circumstances and assess the profitability of this move. However, the condition that must be absolutely fulfilled is having creditworthiness in the new bank to repay the new liability. It is true that a few years ago some banks granted refinancing loans without a formal creditworthiness examination, only on the basis of a positive history of repayment of the current liability, but now every institution absolutely requires the supply of documents confirming the income obtained. The condition for refinancing a loan is having creditworthiness at the “new” bank.
Refinancing a loan pays off to those who incurred the original commitment on less favorable terms (e.g. when loan spreads were over 2.5 pp). Now, when the margins are lower, these people can profit a lot from refinancing. In the case of a foreign currency loan, refinancing may be cheaper than a few years ago, also due to the fact that, according to the recommendations of the Polish Financial Supervision Authority, each bank is obliged to pay the loan directly in a foreign currency at the client’s request, and the bank where the loan is repaid is required allow repayment of the loan also directly in the currency. Thanks to this method of repayment, it is possible to avoid additional costs resulting from the differences between the selling rate at the “old” bank and the buying rate of foreign currency at the “new” bank.
It will certainly not be cost-effective to refinance a loan granted under the Rodzina Na Swoim program during the period of receiving subsidies. Although the Act does not prohibit such a change, the new loan will no longer meet the criteria for receiving additional payments. Due to the lack of interest subsidies, the monthly payments made by the client will be higher than for the “old” loan.
In the right place at the right time
When is the best time to refinance a loan? When our commitment is too heavy for the household budget and we feel aggrieved by the fact that current bank offers are much more attractive than the one we used several months ago. Most people who took out a loan at the end of 2008 and at the beginning of 2009 have a loan margin significantly higher than those currently proposed. At that time, banks were very reluctant to grant loans, and if they did, then due to the high risk the loan margin was also high. If we have a loan from this period, negotiations with the current bank may also be a solution. However, if the proposal is unsatisfactory, then you can opt for a new bank, where the conditions proposed to new customers are more favorable.
Simple rules of the game
However, a new loan must be preceded by a detailed cost analysis that occurs throughout the entire refinancing process. It is worth paying attention to the additional commission that our current bank will collect from us. Unfortunately, in many loan agreements there is a provision that a fee must be paid with early repayment, the amount of which ranges from 1-2% of the outstanding amount of the liability. Therefore, refinancing for a significant amount, after a very short period of time after taking out the loan, may be completely unprofitable. The golden rule of many banks is that the commission for early repayment is charged if the repayment is made within the first three or five years of the loan agreement being in force. After this period, we can repay the loan in almost all banks without any fees.
However, before we finally choose the bank in which we would like to refinance our loan, we must bear in mind some important aspects of the new agreement.
We should check the margin in the new bank, but also whether other products are required. The requirement to use a credit card, account, or purchase an insurance product may lower the loan margin and installment, but often causes that monthly payments increase significantly. Many banks also require a regular top-up amount or a salary. It is worth checking all these additional conditions to be fully aware of the price principles of the new bank granting the loan.
It is also worth paying attention to whether the bank’s margin in which we refinance our commitment will not change during the term of the loan agreement, especially in terms of non-compliance with the conditions for using other products. If the account is not paid with a salary or the credit card is not used, the promotional conditions for the mortgage are irrevocably lost, or is the bank able to re-apply the promotional margin.
Most banks now offer loans for the repayment of other housing loans at the same price terms as if it were a loan for the purchase of such property. However, it is worth paying attention to a few banks that stand out from others and differentiate their offers depending on the purpose of the loan.
Do More Bank does not charge an additional fee for credit insurance until the mortgage is entered. This means additional benefits in the form of a lower installment from the very start of the loan. For a loan intended for refinancing another housing loan, Nordea Bank sets a margin lower by 0.1 percentage point than for a loan with the same parameters, but intended for purchase or renovation. In addition, this institution does not charge commission for such products. The situation is different in Alion Bank – for a loan in USD, which is intended to pay off another liability, the margin is 0.6 percentage point higher than for a similar loan for the purchase of a flat or house.
Other banks have their refinancing loan offers constructed identically to other housing purposes. Therefore, for a large group of loans taken out at the end of 2008 and beginning of 2009, it is now possible to obtain much better price conditions than those currently provided for in the loan agreement. As the analysis shows, refinancing can be a profitable procedure for a large group of borrowers who were forced to take out a mortgage in the downturn.