What to watch out for when signing a mortgage agreement?

Rules on early repayment of the loan

One of the more complicated issues in an agreement with a bank is early repayment of the loan. After a dozen or so years of paying instalments, our financial situation may look completely different from when we bought the property - if we can afford to repay early, in most cases we should do so. Before signing the agreement, let us therefore analyse carefully what the bank says about it - under what conditions it allows early repayment of part or all of the mortgage.

Let us remember that early repayment of a loan often involves additional costs - unfortunately, banks are happy to pass them on to borrowers. We should therefore read the provisions on how fees and commissions are calculated very carefully. Very importantly, the law allows a commission for early repayment to be charged only on loans with a fixed interest rate. A variable-rate mortgage agreement cannot contain such obligations!

The lender should also include in the agreement information about the notice period in the case of repaying the entire mortgage early.

The grace period - what does it mean for us?

A loan agreement for buying a property from a developer (on the primary market) may include a so-called grace period. As a rule, it lasts until construction of the property is completed and ownership is transferred to the buyer (that is, us). During this time we are obliged to pay only the interest due on the mortgage taken out - repayment of the most important part of the loan, the principal, will begin only after the grace period ends.

Does the grace period bring us any benefits? On the one hand, it lets us postpone repaying instalments a little, but on the other - it lengthens the total loan term and, above all, increases the total cost of the mortgage. So let us be careful with it!

Our financial situation - what does the bank want to know about it?

For the bank to grant us a mortgage to buy a property, we must demonstrate at least decent creditworthiness. However, our financial situation, as already mentioned, will change over the years - we can be sure that the bank will expect information about it from us.

The basic document will of course be a certificate of the income we receive - the form it takes depends on how we earn our income. Another way to confirm our financial standing may be bank account statements. The agreement should contain appropriate provisions both on which documents the lender may demand from us and on how often we should provide them. If in doubt, it is worth asking about it!