Borrowers applying for a mortgage must meet many requirements. One of them is the right age. The maximum loan term depends on him. The longest term you can pay back is 35 years, or 420 monthly installments.
Among the loans offered by banks, cash loans have the shortest repayment period. A client who incurs such a commitment usually needs money for several months or years. For a few, much longer financing – up to 10 years or more – will be attractive. Usually such products are used by people who want to combine several old loans into one new one (consolidation) and reduce the amount of the monthly installment.
Mortgage loans, secured by a mortgage on the client’s apartment or house, can be repaid much longer. In many banks, the upper limit is a period of 20-25 years. Those seeking financing for a longer period can count on only one type of loan – a mortgage. It can be used for the purchase of real estate, but also for renovation or modernization of the already owned premises.
The maximum period for which a mortgage can be taken has been set by the recommendation of the Polish Financial Supervision Authority. The supervisor recommends that banks finance liabilities no longer than 35 years. Until 2014, loans fully deserving of long-term credit could be found on the Polish market – for 40 or even 50 years. However, this is the past.
The actual maximum repayment period, however, depends not only on the bank, but also on the age of the borrower. When granting a loan, the institution must take into account that the client may retire during the period of settlement of the obligation, which entails a reduction in income. In most banks, 70 years at the time of repayment of the last installment of the mortgage is the final limit for extending the repayment period. However, the limit in some institutions may be higher if the customer meets the additional security requirements.
The collateral accepted by the banks and allowing the extension of the mortgage repayment period usually includes the assignment of rights from the borrower’s life insurance contract. In this way, the right to withdraw payment from the life insurance policy is transferred to the lender if the customer does not live until the end of the loan agreement.
What installment for a 35-year loan?
Extending the repayment period means lowering the installment being paid. However, it is worth remembering that at the same time the total cost of money borrowed increases. Let’s look at an example of a liability of 150,000 PLN, assuming that the interest rate is 3.72 percent. (3M Euridor from November 2018 plus 2 pp. Margin):
- With a repayment period of 35 years – the installment will amount to PLN 639, and we will repay a total of PLN 268.4 thousand. zł.
- With a repayment period of 30 years – the installment will be PLN 692, and we will repay a total of PLN 249.1 thousand. zł.
- With a repayment period of 25 years – the installment will amount to PLN 768, and we will repay a total of PLN 230.6 thousand. zł.
- With a repayment period of 20 years – the installment will amount to 886 PLN, and we will repay a total of 212.8 thousand. zł.
Theoretically, extending the repayment period could help increase creditworthiness. In such a situation, a home budget could bear a bigger commitment. In practice, however, you should not count on the positive effects of such surgery.
Recommendation S of the Polish Financial Supervision Authority requires banks to apply credit assessment assumptions for loans over 25 years, as if the customer had chosen a 25-year commitment. Therefore, if we do not have enough income to repay the loan with the installment calculated for 25 years, we will not be able to use the financing for the same amount for 35 years.