Seven myths about mortgages

Mortgages have a number of advantages over those granted through the New House (formerly First House) program. Here are a number of myths about mortgages and why they are not true, as well as a number of tips collected by ING Bank for taking out such a loan.

Myth 1: The higher advance payment doesn’t help me at all, I just need the money for the furniture

When we buy a house, we obviously have to think about the costs that will follow after signing the documents. A significant cost is to renovate it (if necessary) and furnish it. Therefore, the temptation to go to the minimum credit advance is very high. But greater progress has many benefits. Among them is the fact that you show caution, which gives the bank the confidence it needs to lend you. This way, the chances of qualifying for the desired amount are much higher. At the same time, you will have a lower rate, which implicitly results from the fact that you also borrow a lower amount. And, in some cases, you can benefit from price discounts, such as an interest rate discount. Basically, when you make a larger advance, you actually “invest” the money for the restructuring, receiving almost double it, discounting the monthly fee. An effort now for a profit in the future.

Myth 2: It takes a long time to get credits, regardless of type

The loan through the New House program has many advantages, but the duration of its completion is longer than that of a standard mortgage loan. The average period for granting a mortgage loan from the first phase to the transfer of the amount to the seller of the property is 37 days. In the case of the New House, the average period is 70 days. The longer duration is due to the fact that there is a third party in the process – the National Credit Guarantee Fund for SMEs (FNGCIMM) as the representative of the Romanian state, and the file is more complex. But these are middle terms. If there are difficulties in the process, you can go up to 87 days in the case of a standard mortgage and 116 days in the case of the new home. Therefore, it is advisable to conclude a pre-sale agreement in which at least three months are foreseen for the completion period of the transaction.

Myth 3: It doesn’t matter if the interest rate is fixed or variable. What matters is the cost I have now.

Until 2019, most variable interest loans in Romania had an interest rate made up of the three-month ROBOR index, plus the bank’s fixed interest margin. And the ROBOR index has fluctuated over the past 10 years from a low of 0.68% to a high of 15.6%. Essentially, if the interest on your loan was 3-month ROBOR + 3%, you could go from an interest rate of 3.68% to 18.6%, which translates into an extremely high rate for a mortgage loan. having considering the considerable amount of credit taken. However, as of May 2019, all new variable interest loans have IRCC + bank margin. The consumer credit benchmark index (IRCC) is calculated as the arithmetic average of the daily interest rates on interbank transactions. The indices are published daily at 11:00 by the NBR and, at the end of the quarter, the IRCC for the following quarter is established, taking into account the average of the previous quarter.

In response to these fluctuations and their unpredictability, fixed rate loans have arisen. First used by banks for personal loans, the fixed rate for mortgages was then introduced. Especially in uncertain times, the trend is to focus on products that give you stability and predictability. And a seven year period where the rate is one and the same month of the month can guarantee these things.

Myth 4: You can’t sell your home for the first five years

Depending on the type of mortgage you are taking out, there may be restrictions on renting or selling. In the case of the Casa Nuova, the property cannot be sold in the first five years, but can be rented. As for the standard mortgage loan, you can rent your home under certain conditions, you can find out how by filling out a simple request with the bank, and the sale of the property can also take place in the first five years, as long as the loan is disbursed.

Myth 5: You are charged if you close the loan early

In the case of mortgages, including those acquired through the New Home program, there is no prepayment fee. This means that if you have the necessary amount to pay off the loan, you can repay it without any problems. The only cost will be the cancellation of the bank loan from the property register. Therefore, if you wish to borrow a larger amount, it helps you to borrow it initially for a long time until you have the necessary amount to close it.

Myth 6: The bank where I have been a customer for years will give me the best conditions

Buying a home is an important step in your life. It is therefore advisable to analyze the market and compare the offers of at least two banks. The fact that you have been a customer of a bank for a very long time and that you receive your salary from it does not offer the certainty that you will receive the best terms for the mortgage loan. Go to the banks’ websites and use the credit simulators to get an idea of ​​the advance you need, how much it costs you and what documents you need to have on hand. You can also contact a credit broker or request a financial advisor on the banks’ websites. After the first discussion, ask for his phone number so he can call you if you still have questions. As ridiculous as your questions may seem, don’t be embarrassed to ask for all the information you need. Write them down, ask for a product description or other documents that you can study for yourself after discussing it. Then, compare the offers received by listing all costs. Keep in mind that, in addition to the purchase of the house, you will also need financing for the payment of the notary and for any changes to the house. If you have gone to the banks, ask for the European Standard Information Sheet (EFSI), the only document that reflects the personalized offer in a comparable way between banks.

Myth 7: Life insurance is not needed

93% of customers who take out a mortgage also opt for life insurance. Because? Because life insurance gives you a double advantage. First of all, it protects your family in the event of an unfortunate event for the duration of the loan (mortgages for a third and better than a person’s life, 25-30 years). Secondly, the fact that you also take out life insurance together with the mortgage loan offers you a reduction in interest. Specifically, if you choose not to take out life insurance, you will only have the same cost if you do not receive the protection.