When signing a home loan agreement, residents assume one of the biggest financial obligations in their lifetime, which is for an average of 25 years, so it is important to evaluate the offers of several banks in order to be able to choose the most advantageous one. What to pay attention to when comparing loan offers from different banks, and what are the most common mistakes that borrowers tend to make in this process, says Kaspars Sausais, head of housing lending at Luminor banka.
Compare at least 2 loan offers
Our survey of the population of Latvia shows that the majority, or 62%, of the population who plan to buy a house in the next year consider the possibility of getting a loan from only one – their main bank, before borrowing, and do not even find out about other offers with more favorable interest rates and conditions, thus missing out opportunity to save. That’s why it’s always a good idea to find out what other banks offer before getting a home loan. In order to be able to choose the objectively most advantageous housing loan option, it is recommended to compare at least two loan offers that can be received by filling out a housing loan application on the banks’ websites. You will receive offers within a couple of days, and you can compare them with each other.
The biggest difference in the price of the loan is the interest rate – even a couple of tenths of interest can make a difference of several thousand euros over a 20-year period. For example, in the case of a 90,000-euro loan for a 20-year term, the difference in the variable rate between 1.8% and 2.2% is more than 4,000 euros.
Attention should be paid not only to the interest rate
The expert notes that when comparing bank offers, a common mistake is to pay attention only to the loan interest rate, without evaluating the additional terms of loan repayment, commissions and other administrative expenses. When concluding a home loan agreement, you almost always have to pay a one-time processing fee, but there are cases when it is not applied, for example, when buying a home from bank partners. How much the client may have to pay in one or another case depends on the specific bank, so it is necessary to familiarize yourself with all the conditions in advance. By signing the contract with the bank, the client confirms that all terms of the loan are clear to him, therefore, in order to avoid misunderstandings, all unclear questions and points of the contract must be discussed with the bank consultant.
Variable or fixed interest rate?
The interest rate that the customer pays to the bank for the loan can be variable or fixed, so the banks’ offers in both cases may differ due to the Euribor rate. A floating rate is one that changes every 3, 6 or 12 months and is set according to the Euribor value. The fixed rate, on the other hand, is set for a longer period of time, for example five years. Each type of bet has its pros and cons. For residents who want to plan their expenses for the long term, a fixed interest rate may be more suitable, however, they are usually slightly higher than variable rates. We see that our bank’s customers most often choose a 3- or 6-month variable interest rate.
Fluctuations in the interest rate depend on the market situation, and this may also affect the final amount of interest paid, which is preliminary in the bank’s offer and may change during the execution of the contract. Also, before concluding the contract, customers should decide on the frequency of the loan interest rate change (3, 6 or 12 months in the case of a variable rate) and other conditions, which should be compared in the offers of different banks.
2024-03-02 06:10:03
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