Consumers using mortgage intermediation services provided by Dom Development Kredyty Sp. z o.o. may use mortgage credit to:

• purchase a newly-acquired property either in shell and core standard or with “turn-key” finishing from Companies operating within the Capital Group of Dom Development S.A.; or

• finance fit-out works (when purchasing a residential unit in shell and core standard); or

• purchase a parking space at ground level or in an underground garage with or without an enclosed garage stall; or

• purchase a storage unit.

The type of collateral used to secure mortgage credit is always described in the corresponding loan agreement.

The principal type of collateral used for such credit is always a mortgage on the property being financed and/or on another property located in Poland and owned by the consumer or held by a third party.

The other forms of collateral used are ancillary (if the mortgage is not fully sufficient given the value of the property in relation to the loan amount – so-called low own contribution insurance) or temporary in nature (until the mortgage is established – so-called bridging insurance).

In addition, banks are obliged to require consumers to take out insurance against fire and other casualty.

It is important for banks that consumers are creditworthy, i.e. that their financial situations allow them to meet their liabilities as they fall due, including being able to pay instalment on the loan they have taken out to purchase an apartment. A loan may be granted only if both conditions – the availability of collateral and an adequate credit rating - are met. This kind of mortgage credit structure follows from statutory regulations and from the recommendations of the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego).

Two factors determine how long the loan term can be. The first is the limit of the term offered by the bank concerned, which is usually 30 or 35 years. The second is the consumers’ age. With regard to the latter, the rule is that the term of the loan should be such that its final repayment is due before the oldest of the borrowers turns 70, 75 or 80.

When deciding on the duration of the loan term, it is important to keep in mind that regardless of the bank’s own assessment, it should be aligned with your own needs and capacities, taking into account your individual financial situation.

In the case of mortgage loan agreements, the following benchmarks are used as a reference:

• WIBOR (Warsaw Interbank Offered Rate) for loans in PLN; the interest rate at which banks lend to other banks - which is fixed on each business day at 11 a.m.
Administrator: GPW Benchmark S.A (since 30 June 2017), formerly ACI POLSKA – the Financial Markets Association.

• EURIBOR (Euro Interbank Offered Rate) for loans in EUR; the interest rate on loans offered on the European market (average of the offers from 57 banks) - which is fixed at 11:00 a.m. in Brussels.
Administrator: European Money Markets Institute.

• LIBOR (London Interbank Offered Rate) for loans in: USD, EUR, CHF, GBP; the interest rate on loans granted on the London international market - which is fixed at 11:00 GMT.
Administrator: ICE Benchmark Administration.

Information on potential implications for the consumer:
Interest rate (WIBOR, LIBOR, EURIBOR) fluctuations will result in an increase or decrease in the value of instalment payments on a loan bearing a variable interest rate. When making decisions, in particular those relating to long-term mortgage credit, the consumer should consider the long-term trend in the market and not only short-term changes in the interest rate. Before concluding an agreement, the bank advises consumers of the costs and risks associated with the loan in question. The consumer bears the risk associated with its decision to borrow and the consequences of that decision. The consumer will remain bound by an agreement pursuant to which he or she will be obliged to keep repaying loan instalments for several years: for more than a decade or even for decades.

When deciding to take out a mortgage loan, the consumer has the option of choosing between a fixed rate loan and a variable rate loan.

At present, most banks offer variable rate mortgage loans. Only a small number of banks offer fixed interest rate mortgage loans.

Variable interest rate — the interest rate at which the loan is offered consists of a reference rate (which varies depending on the currency, e.g. WIBOR, LIBOR, EURIBOR) and the bank’s margin (determined by each bank individually). As the name itself indicates, such interest rates may vary throughout the lifetime of the loan.

When variable interest rates are used, the bank does not guarantee to the consumer that during the entire term of the loan agreement the interest rate will remain the same as at the date of signing the agreement, and therefore the monthly loan instalment amount will also vary. In the case of a loan in PLN, most banks use the WIBOR 3M or WIBOR 6M reference rate. This means that with WIBOR 3M the instalment payment may change every 3 months and with WIBOR 6M -- every 6 months. Depending on the increase or decrease in the interest rate, the monthly loan instalment will increase or decrease. The main financial market indicators and the overall economic situation determine changes in interest rates.

Banks are not entitled to charge any compensation for early repayment of variable interest rate loans after the lapse of 3 years from the conclusion of the agreement.

Fixed interest rate -- the rate at which the loan is offered consists of the IRS reference and the bank's margin (determined individually by each bank) or the interest rate fixed by the bank; this rate is fixed for a portion of the duration of the credit.

A fixed interest rate guarantees to the consumer that the interest rate (monthly instalment amount) will not change for a period specified by the bank. Banks offering fixed interest rates based on the IRS rate most often use the IRS 2Y or IRS 5Y rates, which means that their interest rate may vary every 2 or 5 years, respectively.
Where the bank itself determines the interest rate, it is a fixed value most often for the first 5 years, after which the consumer will repay the loan at a variable interest rate. The consumer is guaranteed that the monthly cost of the credit will not change over a long period of time.

The rates proposed by the banks in the case of fixed interest rates are higher than in products based on a variable rate.

For early repayment of the fixed interest rate debt, the bank may charge compensation for the entire effective period of the fixed rate.

A foreign currency loan (also called a denominated loan) is a type of mortgage loan in which the debt amount is denominated in a foreign currency, according to the exchange rate on the day of signing of the loan agreement. In other words, it is a loan which is disbursed in Polish zlotys, but expressed in a foreign currency in the loan agreement. Since currency exchange rates are variable, and the consumer bears the risk that the foreign currency amount made available by the bank will not be sufficient to purchase the property after it has been converted into PLN at the date of the loan being made available. This will occur if the exchange rate of the foreign currency has dropped between the time the agreement is signed and the moment when the loan is disbursed. Similarly, there may be a situation where the consumer receives surplus funds in the domestic currency if the exchange rate of the foreign currency increases in the period until the date of disbursement.

A variant of a foreign currency loan is an indexed loan. In principle, it is both granted and disbursed in Polish zlotys but its value is indexed to the exchange rate of a foreign currency.

This consists in making repayment of the loan conditional on the current exchange rate of the currency to which the loan is indexed.

In accordance with the current recommendations of the Polish Financial Supervision Authority, beginning with July 2014, foreign currency loans which are indexed to or denominated in foreign currencies are a product that may be offered only to consumers receiving income in the currency of the loan. In the case of consumers (or households) receiving income in several currencies, the bank should ensure that the currency of the loan corresponds to the currency in which the consumer (or household) receives the highest income, where all their income is taken into account when assessing their creditworthiness and in the case of other currencies, the bank should assume that such other currencies will depreciate by 20%.

The materials which the creditor is required to present to the consumer as part of the simulation of its financial liabilities include:

• Total cost of mortgage credit (TCC) – these are all the costs that the consumer is required to incur in connection with the mortgage loan agreement, in particular:
(a) interest, fees, commissions, taxes and margins, if known to the lender
(b) costs of ancillary services, in particular, insurance, where such costs are necessary to obtain a mortgage loan or to obtain it on the terms and conditions offered
- excluding the costs of notarial fees and court fees borne by the consumer.

• Annual percentage rate of charge (APRC) — the total cost of the mortgage loan to the consumer, expressed as an annual percentage of the total amount of the mortgage loan.

Since the methodology for calculating TCC and APRCE is the same for each lender and loan, these values allow comparisons of different credit offers with the same parameters.

We encourage you to read the sample materials published on the websites of lenders with whom Dom Development Kredyty Sp. z o.o. collaborates, e.g.:

• bnpparibas.pl
• citibank.pl
• pkobp.pl

Further additional costs not included in the total cost of the loan relate to the services provided by the lender or by a third party through the lender and whose acquisition by the borrower is not required to obtain the loan or obtain it under certain conditions. Due to the personalised nature of mortgage loan agreements, consumers are obliged to examine in each case any other possible costs not included in the total cost of the loan that is prepared for them. 

In deciding to take out a mortgage loan, the consumer has two options to choose from: equal or decreasing instalments. The instalments to be repaid consist of a capital and an interest portion. Capital is the money that the consumer has borrowed from the lender, and interest is the price the consumer is charged for the loan granted.

The decision about which option for the repayment of instalments to choose should be considered individually, preferably with the assistance of experts. In general, decreasing instalments entail a lower cost of interest at the end of the loan, but higher monthly instalments during the first years of the loan. Equal instalments entail a higher cost of interest at the end of the loan, but lower monthly instalments, which remain at the same level throughout the loan term (assuming the interest rate remains unchanged).

If the consumer's objective is to pay as little interest as possible at the end of the loan term, decreasing instalments seem to be a good choice. Similarly, a person with a high credit rating may opt for decreasing instalments.

On the other hand, a loan repaid in equal instalments means lower monthly instalments, which is safer for the consumer’s personal finances and, should any financial surplus materialize, the consumer can overpay or repay the loan earlier, thus reducing the total cost of interest at the end of the loan term.

A mortgage loan should be repaid on a regular basis, according to the frequency specified in the loan agreement. Instalments are generally payable once a month.

During the loan term, instalment amounts may vary. The lender specifies the period during which the instalment amount will remain unchanged and when and how frequently it will change.

Naturally, each loan can be repaid early in whole or in part. A separate issue is the costs associated with such early repayment. Most banks charge a commission on the amount overpaid by the borrower during the first years of the life of the loan. This commission usually falls within a 1 to 2% range.

In accordance with the Act on Mortgage Loan and Supervision over  Mortgage Brokers and Agents dated 23 March 2017, the bank may charge compensation:

• if the loan is based on a variable interest rate, the bank may charge a fee during the first 36 months of the life of the loan – not to exceed 3% of the pre-paid amount

• if the loan is based on a fixed interest rate, a fee may be charged during the fixed rate period -- not to exceed the bank's costs associated with such repayment.

Is it worth overpaying the loan? When you lack any idea or opportunity for an alternative investment returning a yield higher than the interest rate on the loan (e.g. the purchase of another apartment, term deposits with guaranteed returns), it is worth overpaying the loan because this reduces the interest payable to the bank.
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Prior to making its lending decision, each lender checks the value of the apartment which is to be used as security for the loan. The lender must be satisfied that such property has an appropriate value in relation to the loan granted. In most cases, lenders use external property valuers who perform professional property valuation (a valuation report developed under the terms of the Real Property Management Act or in the form of an expert appraisal of its mortgage lending value). The lender will then ask the consumer to pay for that. However, some lenders offer consumers the possibility of preparing a valuation report on their own, i.e. the consumer itself will independently arrange with a property valuer for the valuation of the property to be carried out. The cost of such a valuation report varies according to the lender and in the case of a residential unit it ranges from PLN 153 to PLN 479.

It is very important to read the general terms and conditions of insurance that may accompany mortgage loans. The most common terms are:

Low own contribution insurance – lenders require an own contribution of at least 10%, 15% or 20% of the purchase price. If the consumer does not have such financial means, the lender may grant a loan for a higher amount, but the missing part of the required own contribution must be insured. The cost of this insurance and the way it is paid for vary from lender to lender. With some lenders, this is a one-off fee payable for the entire duration of the insurance (i.e. until the capital required by the bank is repaid), while other lenders increase the loan margin.

Bridging insurance – insurance that is in effect from the moment the loan is activated by the lender until the mortgage is entered in the land and mortgage register to its benefit. The duration of the insurance depends on the particular case. If the property is acquired at the initial stage of construction, the insurance may continue for up to 2 years. If the apartment is ready for acceptance inspection, the insurance cover period will be 2-3 weeks. The cost of this insurance is usually a margin that is about 1% - 2% higher depending on the lender.

Unemployment insurance – the benefit of having this kind of protection is that the insurer should take over repayment of the loan for some time in the event of loss of employment.

Life insurance – insurance that is activated in the event of the death of the consumer(s) or/and their permanent and total incapacity to work. In the case of these events, the insurer will pay the benefit to the person entitled to receive it in accordance with the instructions of the insured person.

Real estate insurance – insurance required by each lender. After the notarial deed for the purchase of the apartment is signed, it must be insured against fire and other casualty (lightning strike, flooding, overvoltage, flood, etc.). The insurance sum declared by the consumer may not be less than the value of the property as accepted by the lender and used for lending purposes.

The consumer must comply with and perform the obligations laid down in the signed loan agreement. Failure to perform or improper performance of the terms of the agreement may result in the lender changing the terms and conditions of the loan granted. The lender has the right to change the price conditions of the loan previously granted and to initiate a monitoring procedure. These conditions may vary from one lender to another. In addition, the consumer may be charged additional financial costs due to court and enforcement proceedings initiated by the lender in order to assert its rights in the event of failure to comply with or improper performance of the provisions of the loan agreement.

Should financial difficulties arise during the life of the loan, the lender must be contacted immediately to agree on further steps. The sooner that happens, the better the chance to find the right solution.