Mortgages: what banks don’t say …
… unless you ask him!
Choosing a mortgage is not something you often do in life. This means that, in most cases, the person making the request to the bank is not an expert on the subject. The selection criteria that are adopted are different, but even the most scrupulous people can overlook some details that may be relevant.
Below you will find some ideas on topics related to mortgages that are hardly offered spontaneously by banks, and for which instead it could be interesting to have clarifications in order to choose the best mortgage.
- What will be the impact on the installment if I decide to pay off part of the loan in advance?
- How much will the loan pre-repayment interest be?
- How much does compulsory insurance cost and how should I pay it?
- If I had to fully pay off the loan before it expires, can I recover part of the costs for compulsory insurance?
Let’s see what a bank could answer to these questions.
What will be the impact on the installment if I decide to pay off part of the loan in advance?
Generally it is possible to pay off the loan in advance or only a part of it. In the case of partial early repayment, a portion of the residual capital will be repaid in advance. As a result of this, the installment will be reduced, but by how much? One possibility is the proportional reduction in the amount of capital repaid. So for example if we repay 10% of the remaining capital, we will have a reduced rate of just 10%. But in some cases the bank expects that, in the event of partial early repayment, the duration of the loan will be reduced, going to “cancel” the last installments up to the capital repaid early. Also in this case, less interest will be paid and the installment will be lower, but to a different extent than in the previous case.
How much will the loan pre-repayment interest be?
In general, the pre-amortization interest is taken into consideration only a few days before the signing of the contract, when the games are now made. The bank has already been chosen, everything is ready or almost to go to the notary, when you realize that the amount that will be paid by the bank is actually lower than what was expected. All the blame of the notorious “pre-amortization interest”, that is the interest that must be paid in relation to the period of time that elapses between the stipulation of the loan contract and the expiry of the first installment (generally the first day of the month following the stipulation itself ). These interests therefore depend on various factors, the amount disbursed, the interest rate applied, days between the stipulation and the first installment . If we succeed in minimizing these we will have a significant lowering of this component of interests. We keep in mind that the measure of these interests may not be high in relative terms (eg as a percentage of the amount disbursed) but can take on significant values in absolute terms.
How much does compulsory insurance cost and how should I pay it?
The banks, when they provide a mortgage, want to protect themselves by insuring the asset that constitutes the guarantee for the sum lent (for example the property being sold, in the event of a purchase). The costs related to this insurance are borne by the borrower, and are often paid in advance. In some cases they can be included in the installment, and this can be an advantage for the borrower.
If I had to fully pay off the loan before it expires, can I recover part of the costs for compulsory insurance?
If the bank asks us to pay the insurance costs in advance, in theory we could request partial reimbursement in the event of early repayment of the loan. In fact, in general, the cost of insurance depends on the duration of the loan, as it is obtained by multiplying the annual cost by the number of years provided for in the amortization plan. However, it is advisable to ask the bank how situations like this are managed.
The advice of Mister Banca
Not always the consultant of the bank that will follow our practice will be able to answer these questions. But this is another reason why it is better to ask these questions: in addition to avoiding unpleasant surprises when it is too late to change a bank, it can be an effective way to assess the seriousness of the institution itself, the transparency of its offers and the reliability of the consultant assigned to us, or that we have chosen, for our mortgage practice. Getting the right answers to these questions is therefore very important and can in some cases affect the choice of the bank and the form of loan that best meet our needs.