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OPINION

Housing Loans for Rookies

Housing Loans for Rookies

We have revised the original article with the same title in order to simplify and amend relevant information for ease of the reader.

It is amazing how many potential buyers, ready to sign a contract, have so many unanswered questions about the terms of housing loans.

We thus decided to offer advice to new borrowers who need help in order to de-codify the complex loan schemes that banks present

A bit of research will tell you that these terms differ so much that it is almost impossible to make a comparison between the various banking institutions. It remains to be seen if the terms differ on purpose to avoid comparisons. We shall try to simplify the comparison having drawn information from their websites or by talking to bank officials.

The parameters that rule a loan are many and each one of them affects the decision of the customer. These parameters include the interest rate, the repayment period, the minimum contribution, loan charges, penalties for early repayment, initial cost and volumes of securities required, insurance charges, etc.

 

Institutions compared

Our research will cover housing loans offered by four banking institutions. The Bank of Cyprus can offer a fluctuating interest from day one, with Basic Interest, (BI), which is today 2,15% + 0,75% (bracket) = Total annual interest at the start of the loan 2,9%. The maximum repayment period is 30 years with the client’s age at a max of 65 years old. The client’s minimum contribution is 20%. There is a penalty if the loan is repaid within the first 10 years. We were informed that there may be initial fees but this was not clear.

The Coop offers a BI of 2,75% and a margin of 0,25% i.e. an initial total interest of 3%. The maximum repayment period is 35 years and the minimum contribution by the borrower is 25%. There is no penalty for early repayment. The maximum loan is up to €300,000. There are no initial costs. No charges apply for an early loan repayment, either in part or for the whole amount.

The Hellenic Bank offers a BI 2,63% + 0,35% margin = 2,98%. The customer’s minimum contribution is 30% and the maximum loan is €350,000. The repayment period is up to 40 years, with the client’s maximum age at 65. There is no penalty if the loan is repaid early, on the condition that the loan does not exceed €200,000. Initial fees do not apply.

Piraeus Bank, recently renamed ‘AstroBank’. Its BI is today at 2,40% and its margin at 0,90% i.e. a total interest rate of 3,30%. Repayment period is up to 40 years or until the borrowers reaches 70 years of age whichever comes first. Borrower’s minimum contribution is 30%. Penalty for early repayment is 6 month interest on the balance to be settled. Loan fees at €50 plus 0,50% on the loan amount approved.

 

Tool to use

Banks have the right to change interest rates at any time.

When someone decides which loan plan to follow the Total Interest Rate Charged - TIRC (ΣΕΠΕ) is probably the best comparison tool to use as it accounts for the 6 monthly capitalization of interest.

Over and above it might also be wise to evaluate the insurance costs that each bank requires as security for the loan.

There are many other parameters that a borrower may consider to arrive at the best loan plan suits best the family needs

A housing loan spans a lot of years, making the right choice very important. It is hard for someone taking a loan for the first time to evaluate all factors and reach a wise decision through comparison.

The flexibility of a loan scheme might prove more important than the initial interest rate. For example, consider what happens in the case of one or two late installment payments, or what happens if the decision is to repay the loan to the initial bank and take it to another banking institution, or transfer the loan and the property to the children or switch the currency of the loan.

Of course the first thing to consider is the amount of the loan. It must correspond to the income and expenditures of the family so that it can be repaid without downgrading the quality of life of the family.

Concluding, buying a property and getting a housing loan is an once or twice in a lifetime decision. Getting some advice from the experts before doing so will do no harm.

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