Not all loans are equal – a few words about mortgages

When deciding to buy a property, a prospective investor can secure the purchase with a mortgage. What types are there and what does it secure? That is today's topic on the blog.

A mortgage is one of the most complicated banking products intended for individuals, that is, for the average Joe Bloggs. The term covers several types of loans, divided according to their purpose. These are standard mortgages for buying a flat, house or plot of land; construction mortgages for building a house; consolidation loans, which are used to repay other loans and usually considerably reduce the monthly instalment; and mortgage-backed cash loans, whose distinguishing feature is that the borrower can do whatever they like with the borrowed money.

The common thread linking these four types of product is that their repayment is secured on a property owned by the borrower. Technically it works like this: the bank is entered as the mortgagee in the mortgage section of the property's land and mortgage register (księga wieczysta), which is Section IV. And it is precisely because the security is so solid and valuable that mortgages are the lowest-interest loans on the market. Suffice it to say that ordinary cash loans can be several times more expensive.

When setting the interest rate on loans, a bank first analyses the probability of their repayment. Loans with the lowest probability of repayment carry the highest interest rates, while those that are repaid reliably carry the lowest. In the case of mortgages, the repayment rate reaches 98 – 99%. But even if a loan is not repaid, the bank has the right to sell the property on the open market and in this way recover the money it lent.

Our role as estate agents is to give clients sound advice on this issue as well, which is why it is worth keeping up to date with the loan market.

Best regards, Marta Kulawik