Mortgage interest rates have soared. For people who have their own mortgage obligations incurred last year with a variable interest rate, the installment could increase by up to 150%. These are amounts that usually leave a significant mark on our home budgets (disposable incomes). The official reason why interest rates have raised so drastically is the galloping inflation. Raising the cost of mortgages is intended to reduce the availability of “cheap money” available on the market, thus also reducing demand and slowing down inflation. However, an additional effect obtained with this type of treatment is an increase in the cost of servicing the already existing mortgage obligations. “Wakacje kredytowe” (Mortgage holidays) come to the rescue. Therefore today, I will try to bring you the information about this program and show what can you gain from it.
- What are mortgage holidays / wakacje kredytowe?
- What is the potential saving?
- Who can take advantage of mortgage holidays?
- How to apply for credit holidays?
What are the “Wakacje kredytowe”?
Mortgage holidays are a “vacation” from a mortgage, thanks to which you get the opportunity to suspend your loan repayment. The loan payment suspension period is not included in the loan period. And this means that the loan period of your commitment is extended by the months in which the loan payment was suspended. During the suspension period, you are not obliged to make payments under the contract. So, you do not pay capital and interest installments. However, if the loan is insured, you must continue to pay fees under the insurance contract during this period.
Credit holidays may concern one contract concluded in Polish zlotys in order to purchase real estate intended to meet your own housing needs. To sum up, it is about up to 8 months without payment of loan installments:
- 2 months each in the third and fourth quarter of 2022
- 1 month in each of the four quarters of 2023
Credit holidays apply to both the capital and interest part of the loan. The deadlines for payment of installments will be extended without any additional interest. But how will this affect the capital of your loan?
How much can you really save?
And here a pleasant surprise. Let’s use an example with simple math:
The loan installment increased from PLN 1500 to PLN 2400. With 8-month credit holidays (4 × in 2022 and 4 × in 2023), the borrower’s burden in 2022-2023 will decrease by PLN 19,200.
And this is where the question arises, what can we do with the money saved in this way? In general, we have a 3 basic options:
- Spend money on current affairs.
- Build a financial pillow that will protect you in more difficult situations.
- Overpay the capital of your loan.
While the choice between these options is an individual matter depending on our current situation, I will focus on the third option. I will also give you a link to the youtube video, in which it is the Mortgage Expert from Krakow, who shows what impact on the loan will have an overpayment of saved money. The video is in Polish, although the simulation itself shown in Excel starts 10 minutes in and is quite clear. The parameters of the mortgage on which we work are presented below:
|Loan amount||400 000.00 zł|
|Annual interest rate||8,50%|
|Loan period||25 years|
|Monthly installment amount||3 220.91 zł|
|Total cost of interest rate||564 267.85 zł|
|Scheduled number of repayments||288|
If we take advantage of credit holidays, we can save 8 x 3 220.91, which gives us a total 25 767.28 zł What will happen to the loan parameters if we pay the entire saved amount into the capital of our mortgage? Adjusted parameters below:
|Total interest||425 995.28 PLN|
|Scheduled number of repayments||257|
The total sum of interest rates will decrease by PLN 138 272.57 and the length of the loan period will decrease by 31 months which is 2 years and 7 months! This is the power of compound interest. We must consider that within this simulation from a video, we assume that the calculations are approximate and exemplary. This simulation is designed to illustrate the benefits of overpayment of credit and does not provide any dedicated advice. Therefore, I will repeat myself – taking steps in any direction depends on your own individual situation. I would also call for a common-sense approach when making these types of financial choices thinking about a better future. Thanks to this, the “future you”, you will be able to thank yourself for the actions you have performed in the past. Although, let’s move on to the conditions for using the program.
Who can take advantage of “wakacje kredytowe”?
If you want to take advantage of mortgage holidays, you must meet all 3 conditions listed below:
- Condition 1
You can take advantage of credit holidays as a mortgage borrower who has a loan in PLN.
- Condition 2
You can take advantage of wakacje kredytowe only if you bought the property for your own housing needs, i.e. to live in it. Mortgage holidays are entitled to only one loan which is the one taken for your own housing needs. Wakacje kredytowe are also granted to a person who has taken out a loan for the construction of a house, as well as for the purchase of the land itself for construction purposes. Provided that this loan was taken (once again) for your own housing needs.
- Condition 3
Mortgage holidays apply to loans taken before 1 July 2022.
How to apply for mortgage holidays?
You should apply for credit holidays to the bank that granted you the mortgage. The application itself can be submitted in via visit in the bank or electronically. Although the electronic option seems to be the more convenient and as effective as a visit to the bank. You can submit the application from July 29 this year, because it was on that day that the regulations entered into force. It is you, as the Borrower, who decides how many months you want to use credit holidays.
At the same time, you can submit an application once – for the entire period, part of it or even submit individual applications for each of the selected months. The Bank will confirm the acceptance of the application within 21 days from the date of its receipt. It will indicate the period for which the loan repayment has been suspended as well as the amount of fees that must be paid for credit insurance. But what is also important is the fact that the lack of confirmation does not affect the start of the suspension period.
Summary of Wakacje Kredytowe
Credit holidays seem to be a big relief for overloaded budgets. But not only. With the right consistency, it is also a great way to reduce the size of your liability to the bank and getting rid of the mortgage faster. At the very end, it is still BIK (Credit Information Bureau) which is worth mentioning. Each person with a loan is entered into BIK system with adequate information on the amount of our debts. In conclusion, Information on whether we will use the Wakacje kredytowe will also go there. However, the question remains, how banks will be able to use this information. It is important to make an aware decision before we use the saved amount. Especially, if this mortgage is not to be our last one.
I hope that this text will help you save some of your money. And if so and you would like to buy me a coffee in return, I encourage you to do it virtually through this link. Cheers!
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Special thanks to Eamon Gosney, who has helped with proofreading of this article.