Why is it worth having a large down payment when purchasing an apartment with a mortgage?

In Poland, obtaining a mortgage without a down payment has not been possible for some time. Initially, only a 5% property value was required, but now a 20% down payment is the standard. A lack of adequate savings can be a significant obstacle to obtaining financing. The situation changes dramatically when a client has more capital and is willing to pay a 50% down payment on the property. What benefits can a borrower expect by providing a large down payment?

What is considered a large down payment?

For banks, a substantial down payment is one that exceeds the minimum requirements, such as 30%, or even 50% or 60%. The more funds one manages to gather, the better the loan conditions can be, as the bank perceives such an obligation as less risky. However, it’s worth noting that too high of a down payment might deter a potential lender. Let’s assume you are interested in residential investments in Warsaw for young people. You want to buy a residential unit in the capital of Poland and have 400,000 PLN in savings, planning to purchase a property for 650,000 PLN. The bank will only need to lend you 250,000 PLN. As a result, you might end up on a list of less profitable clients, generating low interest and commissions. Paradoxically, in many cases, having a smaller down payment may lead to better loan conditions and lower interest rates than for those with a large cash reserve.

Does a large down payment have any disadvantages?

Unfortunately, yes. Although a high down payment theoretically reduces loan costs and monthly payments, it can involve certain risks in practice. A client who opts for a larger down payment receives the status of a safe borrower, but at the same time is treated as someone generating lower income for the bank. This is because they take out a smaller loan amount, resulting in lower interest and, consequently, less profit for the bank.

As a result, despite a higher down payment, such a client may not receive a more advantageous loan offer compared to someone who made the minimum down payment. Additionally, with a low loan amount, the ability to negotiate financing conditions is limited. Most banks agree to reduce interest rates only for loans exceeding 300,000 PLN.

Large down payment – benefits

The larger the down payment we make, the more favorable the LTV (loan-to-value) ratio will be, which translates into more attractive mortgage conditions in the bank. A lower LTV means less risk for the financial institution and, consequently, lower loan installments due to a smaller amount to repay. A high down payment increases our credibility as borrowers and reduces the total amount of the obligation, which includes interest.

A large financial contribution for purchasing a residential unit that is still under construction

A large down payment can become problematic, especially when planning to purchase an apartment from the primary market at an early construction stage and not yet having a credit approval decision. This is because priority is given to depositing one's own funds into the developer's account, which covers the initial loan tranche. Only after these funds are exhausted does the bank begin to finance subsequent construction phases. If your down payment is significant, it will cover many months of payments to the developer. The problem arises when one cannot apply for a loan well in advance – this is usually only possible a few months before the first tranche is disbursed. This means you may be paying substantial amounts to the developer without certainty that the loan will be granted. In the event of a loan denial, recovering the deposited funds may prove extremely difficult.

To avoid significant risk, it's better to focus on new residential investments in Warsaw being carried out by a reputable developer that are already completed and just waiting for their owners. A great example is the Vola estate, developed by Ronson Development. This modern residential complex is located in the rapidly developing and green Wola district of Warsaw. The estate offers comfortable apartments with a high standard of finishing. The area features landscaped green spaces, playgrounds, schools, and shopping centers.

Although the benefits of making a larger down payment are obvious to many, the bank itself is concerned with what strategy the loan advisor will adopt and what conditions they will offer us. Considering the previously mentioned risks, it’s worth individually considering making the required down payment.

From the bank's perspective, the most desirable situation is when a client makes a down payment of 20% of the property value while simultaneously taking out a large loan and having solid creditworthiness. This arrangement allows the bank to achieve satisfactory profits from granting the loan. For the client, a high down payment is beneficial as it leads to a reduction in the loan amount and, consequently, lowers interest and total costs of the obligation. However, in certain situations, such as purchasing a property that is still under construction, a high down payment may be less profitable for the borrower. Therefore, if you are still looking for your dream home, be sure to check out new apartments in Warsaw that are already ready for occupancy. We warmly invite you to explore our offer of apartments.