How to save on a mortgage loan?
Mortgage loans have the lowest interest rates ever. Is there any opportunity at all to still save somewhere? If you compare interest rates and monthly loan installments, do not forget to also add to the expense the costs related to a mortgage loan. For example the current account fee.
What fees should you expect when buying a property?
- Loan arrangement fee – without a promotion, the amount is about 0.8 – 1% of the loan.
- Land register fee – there is a standard fee of EUR 66 for an application for a record of a lien and another EUR 66 for an application for a record of a purchase agreement. If you file a notice of an intended application for a record online, you only pay EUR 51. However, under a purchase agreement the real estate agency often pays another EUR 66 as a service covered by its commission.
- Property valuation – the price for an appraisal usually ranges from EUR 100 to EUR 350, depending on the type of property you have valuated. Flats or land plots are the cheapest, while an unfinished family house can cost a lot.
- Property deposit – before drawing the loan, you must usually pay the reservation fee. Although it will be deducted from the agreed purchase price of the property, you will need the money upfront to pay the deposit. Usually 2 to 3% of the purchase price is paid, at least EUR 2,000.
Regular monthly expenses:
- Monthly loan installment – you can set the amount depending on the chosen loan repayment period.
- Current account fee – certain banks require you to maintain or actively use a current account with a mortgage loan, other will offer you the account for free. This fee can make your overall overpayment more expensive by several thousand euros.
- Property insurance fee – insurance of property is one of the conditions for receiving a mortgage loan. It can cost you tens of euros a year, depending on the value of property. For a property worth EUR 100,000 it can cost EUR 80 to 100 a year.
- Loan insurance – if you plan to secure yourself by insuring your loan, your monthly expenses will increase. Compared to a standard life insurance, monthly premium for this insurance is usually cheaper, since the sum insured to which your are covered decreases with each installment and always covers the currently outstanding loan balance.
Practical example how different fees influence
the APR and total amount paid for the loan:
For a mortgage loan of EUR 50,000,
with an interest rate of 1.45% p.a.,
with a repayment period of 30 years
monthly loan installment is EUR 171.36.
Other anticipated costs:
land register fee EUR 66,
monthly premium on property insurance of EUR 3.33,
loan arrangement fee EUR 0,
property valuation fee EUR 0.
The total amount you pay over 30 years is EUR 62,954.40, which represents an annual percentage rate (APR) of 1.61% p.a.
- Current account = expense of EUR 2,160
If you add the current account fee of, for example, EUR 6, the total amount increases to EUR 65,114.40.
APR increases to 1.86% p.a.
- Appraisal = cost of EUR 150
If you need a new appraisal for a mortgage loan, e.g. for EUR 150, over 30 years the total overpayment is EUR 63,104.40.
APR increases to 1.63% p.a.
- Loan arrangement fee = cost of EUR 400
If banks currently do not offer a discount on the loan arrangement fee, you will usually pay an amount ranging from 0.8 to 1% of the loan when drawing down the loan. So your total overpayment of a mortgage loan of EUR 50,000 increases by EUR 400 (0.8% from EUR 50,000).
APR will be 1.67% p.a.
Mortgage loan with no fees:
If you did not have to pay stamps at the land register, loan arrangement and valuation fee and had no costs related to the current account or property insurance, in the above example the APR would be 1.46% p.a. and the total amount paid over 30 years would be EUR 61,689.60.
Regular monthly expenses associated with a loan are ultimately more expensive than one-off fees paid at the beginning. If you are considering taking out or refinancing a mortgage loan, do not forget to always check not only the interest rate or the loan arrangement fee, but also other related conditions.
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