Today, we will take a look at what is really worth knowing about a down payment!
Down Payment on a Mortgage—Why Is It Necessary?
A down payment is one of the most important parameters used to assess creditworthiness, which makes it possible to determine the risk associated with granting a loan to a particular person. This should come as no surprise—funds saved over a certain period are a fairly good indicator of the ability to save and manage money. This, in turn, affects the ability to repay all credit obligations on time.
Mortgage payment calculator on the Expander
Minimum Down Payment in 2019
The Recommendation S introduced in 2017 by the Polish Financial Supervision Authority (KNF) suggested that the down payment when applying for a mortgage should amount to at least 20% of the value of the property being purchased. This standard remains in force today, and this is the level of savings that contemporary banks expect from borrowers.
Does this mean that people who do not have such an amount—after all, at least several tens of thousands of zlotys—cannot apply for a mortgage at all? It turns out that they can, provided they purchase suitable low-down-payment insurance or provide security in the form of assets or properties of sufficiently high value.
The Down Payment Amount and the Cost of the Loan
The relationship is clear: the higher the down payment, the lower the total cost of the mortgage. This is because loan interest is calculated on the amount of capital borrowed, so borrowing less ultimately means that the total interest will be correspondingly lower.
Ultimately, it turns out that a difference of just a few percentage points in the down payment can result in savings of tens of thousands of zlotys. That is a huge amount of cash that could, after all, be put to much better use.
Summary
Obtaining a loan with a small down payment can be exceptionally difficult. For this reason, as well as several others, it is worth trying to make the down payment as high as possible.