A guide to mortgages in times of inflation

Types of interest rates and their impact

1. Fixed interest rate

• Does not change during the term of the agreement (usually 3–5 years).
• Provides stable installments, but the bank’s initial margin may be higher.

2. Variable interest rate

• Based on a reference rate (WIBOR 3M or 6M) plus the bank’s margin.
• The installment may increase or decrease along with changes in interest rates; in periods of high inflation this means higher risk, but also potentially lower costs if rates are cut.

3. Mixed interest rate

• Initially fixed (e.g. for 5 years), then variable.
• Combines protection against sudden installment increases with the opportunity to benefit from lower interest rates in the future.

Bank margin and negotiation

• Margin is the part of the interest rate set by the bank (an add-on to WIBOR).
• It is worth negotiating the margin, especially if:
  • you have a high down payment (above 20%),
  • you choose additional banking products (salary account, card, savings account).
• A difference of even 0.3–0.5 percentage points in the margin can reduce the monthly installment by several hundred PLN.

Down payment and insurance

1. Down payment

• The minimum down payment currently amounts to 10–20% of the property value.
• A higher contribution (30–40%) often means a lower margin and no need to purchase low down payment insurance.

2. Low down payment insurance

• With a down payment below 20%, banks require PMI (Private Mortgage Insurance) – costing approx. 0.3–0.5% of the loan value per year.

3. Life and property insurance

• Many banks require life insurance – it is worth comparing offers, as premiums can differ significantly.
• Property insurance against fire and other random events is mandatory.

Equal vs declining installments

Equal installments

• A fixed installment amount, with the capital portion increasing over time and the interest portion decreasing.
• A good solution for a stable household budget, especially with high loan amounts.

Declining installments

• A higher installment at the beginning, which gradually decreases as the principal is repaid.
• Lower total interest cost, but higher initial creditworthiness requirements.

Refinancing and loan transfer

• Refinancing involves taking out a new loan on better terms to repay an existing obligation.
• During periods of high interest rates, it is worth considering refinancing when banks lower margins or WIBOR decreases.
• Fees and charges for early repayment must be taken into account, as they may reduce real savings.

Installment simulation and calculators

• Online mortgage calculators allow you to compare:
  • the impact of the margin on the installment amount,
  • differences between equal and declining installments,
  • changes in installments when rates rise or fall by 1 percentage point.
• Always assume a safety buffer – the installment may increase by as much as 20–30%.

Practical tips

• Negotiate fees and margin – even small reductions mean real savings.
• Choose a fixed-rate period, especially when there is a risk of rising interest rates.
• Build a financial buffer – plan an extra 20% in your budget for potential installment increases.
• Monitor the market and consider refinancing at the right moment.
• Use an advisor – they will help select an offer and guide you through the formalities.

Summary

In times of high inflation, a mortgage requires a conscious approach and careful analysis of interest rate risk. The choice of interest rate type, installment structure, down payment level, and effective negotiation have a crucial impact on the total cost of the loan. Plan with a safety buffer, observe the market, and consider refinancing when better conditions appear – this way, a mortgage can become a tool of stability rather than a burden.