The Bank Margin — What It Is and How to Lower It

What exactly the margin is

The interest rate on a variable-rate loan is the sum of two elements: the reference rate and the bank's margin. The reference rate changes over time and depends on market conditions, whereas the margin is fixed and written into the contract for the entire loan term. It is the bank's remuneration for granting and servicing the loan.

Because the margin does not change over several decades, even a small difference in its size translates into a significant amount over the whole commitment. That is why fighting for a lower margin is one of the most effective ways to reduce the cost of a loan.

What affects the size of the margin

Banks set the margin individually, taking into account the customer's risk profile. The key factors are the size of the down payment, your credit capacity and credit history, the level of your income and the stability of your employment. The lower the risk for the bank, the greater the chance of a more favourable margin.

Taking up additional products, such as a personal account with your salary paid in, a credit card or insurance, also matters greatly. Banks often offer a margin reduction in exchange for so-called cross-sell, but it is worth calculating whether the cost of the extra products does not exceed the benefit of a lower margin.

How to negotiate before signing

The best moment to negotiate is the stage before signing the contract. The basis is holding offers from several banks — a competing proposal is the strongest argument in the conversation. It is also worth emphasising your strengths: a high down payment, stable income and a clean history in BIK.

You can also use the help of a mortgage adviser who knows current bank policies and can point out where your profile will be assessed most favourably. Remember that banks expect negotiation — the first margin presented is rarely their final word.

Can the margin be lowered after signing the contract

Once the contract is signed the margin is, as a rule, fixed, and the bank is under no obligation to lower it. If, however, more favourable offers appear on the market, the solution is refinancing — transferring the loan to another bank on new terms, including a lower margin.

Before deciding on refinancing it is worth calculating the total effect, including the costs of changing banks. Sometimes simply presenting your current bank with a competing offer prompts it to prepare a proposal to retain you as a customer, though this is not a rule.

Summary: the margin as room for savings

The margin is one of the most important and at the same time most negotiable parts of a mortgage. It depends mainly on the down payment, credit capacity and additional products. The most can be gained before signing the contract, with offers from several banks on the table. After signing, refinancing remains the real tool for lowering it. It is worth spending time on negotiation, because the effect is spread over the whole repayment period.