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Bank mortgage promotions are not always profitable

What attracts customers? Sale! Undoubtedly, the banks, which have recently introduced more and more mortgage loan promotions into the offer, agree with this. Special occasions usually include lower margins offered in the first years of the mortgage.

However, is the promotional offer always beneficial?

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More and more banks are offering clients a mortgage with a promotional margin. This is undoubtedly a sign that autumn is approaching, which is the time of increased demand for apartments. On the other hand, the reduction in the margin is one of the preferential credit conditions most expected by customers, which willingly attracts them to a given institution.

Banks cut the margin, but only for the right time

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Recently, several banks have modified their mortgage offer by introducing a lower margin. However, the promotion only covers a certain period of time at the beginning of the loan period and usually lasts from one to three years. And so, e.g. Eurobank introduced a promotional margin in the first year of loan. Clients who decide to take a loan with a minimum 10% own contribution can get a margin reduction of 0.45 percentage points in the first year of financing, i.e. 0.8 pp, and after this period it rises to 1.25 pp. Borrowers who do not have such a large down payment can count on a margin of 1.20 and 1.55 pp, respectively

In addition to Eurobank, people taking loans from Don Bank or DnB Nord can count on the promotional margin in the first year of crediting. Borrowers in debt with Bank Okinawa can enjoy a year longer with a reduced interest rate. The longest, 5-year period with a lower margin is available in the BNP Paribas offer.

How much do we gain from a lower margin?

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The answer to the question how much we gain thanks to the promotional margin is only possible after calculating the weighted average of its value over the entire loan period. The offers of 5 banks, which differentiate the interest rate in subsequent loan years, have been analyzed. The table below presents the weighted average margin for each bank for the 30 and 20 years. For the longer of the periods the difference between the target margin paid for almost the entire loan period and the average taking into account the reduction in the first year of loan is small. Therefore, this type of offer should be approached particularly carefully, because the benefit that we can get thanks to the promotional reduction of the margin is really negligible.

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