When choosing a mortgage, we often start with the most visible number – the interest rate.
But is seeing 2.18%, 2.19% or 2.26% enough to determine which offer is best?
In practice, it is not.
The same client may be offered a different maximum loan amount, term, monthly burden and financing structure depending on the bank.
That is why, when comparing mortgages, we do not compare nterest rates alone.We compare the entire financing structure..
One Client. Three Banks.
One Client. Three Banks.
For the purposes of this comparison, offers from three banks were reviewed for the same client, with the same income, the same collateral and the same existing liabilities..
The differences in the maximum loan amount and terms result from the different criteria applied by each bank and the way each structures the financing.
A working market valuation of €210,000 has been assumed for the collateral.This is not a bank valuation that has already been carried out – the actual valuation is still pending. If it proves to be lower, it may reduce the maximum permitted loan amount.
The offers received are as follows:
| Indicator | Bank 1 | Bank 2 | Bank 3 |
|---|---|---|---|
| Loan amount | 180 000 € | 170 000 € | 157 500 € |
| Term | 30 years | 28 years | 30 years |
| Interest rate | 2,18% | 2,19% | 2,26% |
| Base monthly instalment | 681,64 € | 749,17 € | 602 € |
| APR | 2,36% | 3,1933% | 2,54% |
The figures reveal something interesting.
The difference between the interest rates is minimal. The difference in the financing itself, however, is significant.
Why Does the Same Situation Lead to Different Loan Offers?
This is where the real difference between the banks’ offers lies.
Bank 1 offers a maximum loan of €180,000 over 30 years at an interest rate of 2.18%.
Bank 2 considers a maximum amount of €170,000,over 28 years at 2.19%.
Bank 3’s option is €157,500 over 30 yearsat 2.26%.
In other words, even for the same client, the result may differ – not necessarily because one bank is “more expensive”, but because the rules and financing structures are different..
Does the Lowest Interest Rate Mean the Best Offer?
Not necessarily.
In this example, the lowest interest rate is 2,18%, but that alone is not enough to determine that the offer is the best.
We need to look at what lies behind that rate:
- the maximum loan amount;
- the term;
- the monthly instalment;
- the fees;
- the required insurance policies;
- the APR;
- whether salary or other income must be transferred to the bank;
- the structure of the loan;
- how the collateral is valued;
- and any additional costs.
Even a small difference in the interest rate can add up to a significant amount over the life of the loan. The actual impact depends not only on the loan amount and repayment term, but also on the repayment method.
In the preferred option in this particular case, the loan is €180,000 over 30 years at 2.18%, with a base monthly instalment of €681.64 and an APR of 2,36%.
The monthly instalment is supplemented by life insurance costs and the current-account fee, while property insurance is paid separately on an annual basis. As a result, the total cost of the mortgage exceeds the basic monthly repayment.
This is one of the most common mistakes when comparing mortgages:
comparing the advertised interest rate instead of the actual cost of financing.
Variable Interest Rates – What Is Behind the Percentage?
It is important to note that the interest rates shown are variable, not fixed for the entire term of the loan..
They are calculated as the sum of a reference interest rate and a fixed contractual margin.The specific reference rate and the size of the margin depend on the bank and the loan terms.
If the reference rate changes, the interest rate on the loan may also change, and consequently so may the monthly instalment.
For some products, the margin may also depend on whether certain preferential-lending conditions are met.
Therefore, when we see 2.18% or 2.26%, we need to understand that this is the rate applicable at a particular moment and under specific conditions– not necessarily a fixed price for the next 25 or 30 years.
The APR Tells Us More Than the Interest Rate
The annual percentage rate of charge (APR) is important because it gives us a broader picture of the cost of borrowing.
In the example reviewed, the nominal interest rates fall within a very narrow range:
2.18% → 2.19% → 2.26%
But the APRs are:
2.36% → 3.1933% → 2.54%
This shows why we should not stop comparing at the interest rate.
Of course, the APR must also be considered carefully, because different products may include different costs, insurance policies and conditions.
The APR is not a universal price for a bank;it is an indicator calculated for a particular loan with particular parameters.
The Property Itself Also Matters
With mortgage financing, it is not only the client’s income that matters – the collateral does too..
For some banking products, the maximum loan-to-value ratio (LTV) depends on the characteristics of the property.
For example, financing for a panel-built apartment may be limited to 80% of the property’s market valuation..
For new buildings with energy efficiency class A, financing may reach 90%.
For borrowers with income from abroad, the limit may be up to 70%and the interest rate will be higher for this type of lending.
This means that the same income does not guarantee the same loan amount.The type and market valuation of the collateral, as well as the source of income, also matter.
Equal or Decreasing Instalments – What Is the Difference?
When comparing mortgage loans, it is also important to consider the repayment method. Depending on the loan terms, repayments may be annuity-based or decreasing.
With annuity instalments , the monthly payment covering principal and interest usually remains the same over the relevant period, provided the interest rate and other terms do not change. At the beginning, a larger share of the payment covers interest; over time, a larger share goes towards repaying the principal.
With decreasing instalments , the principal repaid each month is the same, while interest is charged on the outstanding debt. As the loan is repaid, the total monthly instalment gradually decreases.
For the same loan amount, interest rate and repayment term, a mortgage with decreasing instalments generally results in a lower total amount of interest paid. This is because the principal is repaid in equal portions, reducing the outstanding balance more quickly from the outset. However, this comes with higher initial monthly payments. Therefore, the choice is not simply between a lower and a higher total cost of borrowing, but also involves different levels of monthly financial commitment.
These two approaches affect the household budget differently. Annuity payments are more predictable, while decreasing instalments involve a higher initial monthly burden that falls over time.
When comparing offers, we should therefore look not only at the interest rate and term, but also at the repayment schedule, the total interest payable and the initial monthly payments.
When comparing actual bank offers, we should check what the stated monthly amount includes – principal and interest only, or additional costs such as insurance and fees.
The same loan instalment does not necessarily mean the same total monthly cost. That is why it is important to examine the entire financing structure.
Insurance Is Also Part of the Calculation
When considering a mortgage, we often focus on the loan amount, interest rate and monthly instalment, but overlook insurance costs. These can also affect the total cost of financing.
Two types of insurance are particularly relevant to mortgage lending: property insurance and life insurance..
Property insurance protects the property against the risks covered by the specific policy. When comparing bank offers, we should check which risks are covered, how the insured amount is determined and what the annual premium is.
Life insurance provides protection in the event of specified insured events; the exact cover depends on the policy terms. Some banking products allow clients to choose between different levels of cover, which also differ in price.
The basis on which the insurance premium is calculated also matters.. Depending on the product, it may be based on the property’s market value or on the outstanding loan balance. These approaches can result in different costs over the life of the loan.
The payment method matters too. Some bank offers allow life insurance to be prepaid for a specific period, for example several years, rather than being charged regularly and included in monthly payments. This changes the amount of money required at the outset and the way the client plans their budget.
If an insurance premium is included in the financing or allocated to payments in a particular way, it is important to check exactly how the total cost is calculated and whether interest is charged on that amount. This depends on the specific arrangement and contractual terms.
That is why, when comparing mortgage offers, it is not enough to know only the interest rate and the basic monthly instalment. We should also examine insurance costs, how premiums are calculated, the cover provided and the payment terms.
The question is not simply, “What is my monthly instalment?” but “What will this financing actually cost me, and what protection do I receive against additional risks?”
What About the Property Valuation?
This is another factor that is often overlooked.
A working valuation of €210,000 has been assumed for the collateral..
However, this is not the final bank valuation.
If the bank values the property at a lower amount, the maximum permitted loan may change.
This means that even when the buyer has the necessary income and the loan appears feasible on paper , the value of the collateral may prove decisive..
When buying with mortgage financing, we should therefore consider not only:
property price → income → loan
but rather:
price → valuation → permitted financing → buyer’s own contribution → monthly burden
Why Is the Total Amount Repaid Not Enough for Comparison?
At first glance, it may seem logical simply to compare how much we will repay to the bank in total.
But this too can be misleading.
When loans differ in amount and term, the total amount repaid is not sufficient as a standalone criterion for direct comparison.
We should therefore compare offers on the same basiswherever possible:
- loan amount;
- term;
- interest rate;
- APR;
- monthly instalment;
- all mandatory fees;
- insurance;
- requirements imposed on the client;
- early-repayment conditions;
- and, above all, how the loan fits the client’s specific financial situation.
So, Which Offer Is Best?
In the case examined, one offer may appear more attractive because it provides a higher loan amount, a longer term and a lower interest rate.
But that does not mean the same offer is best for every client..
One offer may provide a larger amount of financing, another a lower monthly burden, and a third a different structure or other conditions.
This is precisely where professional comparison differs from advertising-led comparison.
A Mortgage Is an Individual Decision
There is no universally “best mortgage”.
There is a loan that is more suitable for a particular person, income, property and purpose..
Two buyers may look at the same offer: it may be excellent for one and unsuitable for the other.
That is why, when choosing, it is important to ask not only:
“Which bank offers the lowest interest rate?”
but rather:
but: “Which financing structure is best suited to my situation?”
This is why comparing several bank offers can provide a much clearer picture than considering one offer in isolation.
Our Conclusion
The three offers in this particular case illustrate an important point:
The same client does not necessarily receive the same result from every bank.
The differences may arise from:
income → bank criteria → property valuation → loan structure → term → interest rate → APR → fees → insurance.
That is why the lowest interest rate is not enough to identify the best offer.
A good mortgage offer is one whose overall structure best meets the needs of the specific client, their income, the collateral, the purpose of the loan and their actual monthly financial burden.
When comparing offers, we need to look at the whole loan – not just the number next to the “%” sign.
Important Note The parameters shown are based on specific bank offers received and are for illustrative purposes only. The final loan amount and terms are subject to confirmation by the relevant bank and depend on the actual valuation of the collateral and final approval. The stated interest rates are variable and apply under the specific conditions of the offers reviewed. The APR has been calculated for each loan using its particular parameters and should not be treated as a universal indicator for all products offered by the relevant bank.
