I often see people’s opinion that the best mortgage is the one with the lowest interest. However, interest is not the only aspect that determines the profitability of a mortgage. The advantage of a mortgage is often influenced by the overall conditions under which you obtain the mortgage and the interest rate. You have to remember that even in banking is paying the famous “I do not want a discount for free”. Banks most often give a discount on an actively used bank account, credit card and credit / life insurance. It is also important to count on the monthly fee for loan management, which ranges from 150 USD / month to 250 USD / month.
The advantageous mortgage is not determined only by the interest rate
To give you an idea of how the conditions affect the mortgage’s profitability, I have prepared a table with a comparison of two offers while ensuring a 100% mortgage for the purchase of a family house.
|Loan Amount||USD 1,000,000|
|Due date||30 years|
|annual interest rate||3.89%||4.09%|
|Fee for provision of DGR||2 900 USD|
|Monthly fee for DGR administration||150 USD / month|
|Mandatory payments / insurance||932 USD / month||0 USD / month|
|Repayment of DGR||4 711 USD / month||4 826 USD / month|
|Repayment of DGR with fees||5 793 USD / month||4 976 USD / month|
|Total interest paid||695 944 USD||737 496 USD|
|Total paid||2 088 364 USD||USD 1,752,844|
APR Annual Cost Percentage Rate
Refers to the total cost of the loan, ie the rate that includes all expenses associated with the mortgage, ie. fees, interest, property insurance, life insurance, if required, etc.
The client received an offer from the bank of 3.89% under the conditions of opening and active use of the bank account and life insurance of the loan for USD 932 / month. As a counterproposal, we gave the client an offer with the condition of active use of the bank account. We also negotiated a discount on interest of 0.30% from the standard offer and reached the final interest rate of 4.09%. Based on data on the total interest paid, a higher interest rate of USD 335,520 is more advantageous. Everything is caused by the payment of monthly credit insurance, which increased APR from 3.89% to 5.86%.
The APR determines the overall advantage or disadvantage of loans.
However, this does not mean that credit insurance is bad and the only increase in costs / APRC. This is mainly increased by ancillary charges. The advantage of credit insurance is also given by the setting of this insurance and in the case of insurance directly from banks is not always the best solution.