The Bank, within the scope of its rights resulting from the signed loan agreements, may change its terms. This is most often the case with mortgages. Basically, it is these contracts that are most often modified by banks, mainly because their loan period is usually very long.
In 25-30 years, there may be radical changes in the economy, which may in a way force changes to the mortgage contract. Banks do not want to incur losses, so they construct such long-term contracts with the proviso that some of their provisions may change in the future.
It should start with the fact that the bank has the right to change the terms of the contract it has entered into with the client. Most often this situation applies to mortgages, where the conditions are modified. In this case, it is worth finding out what the loan agreement requires us to do.
When can you make changes to your loan agreement?
The loan agreement signed with the bank usually contains provisions regarding in which cases changes may be made to its content. Banks usually leave a gate in the form of the possibility of making changes to the contract when the market situation deteriorates or improves.
For example, the bank’s margin may change as a result of changes in the main interest rates set by the Monetary Policy Council operating at the National Bank of Poland.
The change can also be made at the customer’s request, e.g. if he would like to make some modifications to the repayment schedule or in his own data included in the loan agreement.
What provisions in the loan agreement can be changed?
Before signing the loan agreement, the customer must know, among other things, what mortgage terms the bank can change after signing the contract. Most often they concern:
- the margin the bank may charge (remuneration for granting the loan included in the interest rate);
The margin has a direct impact on the amount of principal and interest installments repaid by the customer. For this reason, borrowers are quite rightly afraid of any changes in the terms of the contract in this regard, as they can generate an additional burden on their home budget.
If, for example, a change in the bank’s margin or insurance is made by the bank in accordance with the conditions indicated in the signed credit agreement, then the customer has nothing left to do but sign the annex to the credit agreement and thus agree to the proposed terms.
With foreign currency loans, an annex to the loan agreement may relate to the conversion of the amount of the liability. Customers may also change the provisions of the loan agreements. The customer should report to the bank a change in such data as:
- borrower’s personal data,
- place of residence and registered address,
Failure to notify the bank of such changes may cause the bank to draw legal and sometimes financial consequences for the client. Ultimately, the loan agreement may be terminated, which will result in the refund of the sum of the loan granted and outstanding.
In addition, in agreement with the bank, the loan agreement may change as regards the payment schedule. In this case, we can deal with:
- a grace period, i.e. deferment of installment payment ;
- suspension of the repayment period, i.e. popular credit holidays;
- prolongation, i.e. extension of the loan period.
Much less frequent appearing modifications to credit agreements may be:
- a change related to the withdrawal from the insurance contract or the cessation of the use of certain banking products – on which, for example, preferential price conditions were dependent;
- change in legal collateral for a loan or credit facility, e.g. mortgage on an additional property.
In each of these cases, an annex to the loan agreement is signed.
Banks are obliged by the new mortgage act to restructure their debt if the borrower is unable to pay his loan installments. Restructuring involves changing debt repayment terms and adapting them to the client’s capabilities. It may include:
- temporary suspension of loan repayment,
- deferral of loan and debt service costs,
- change in capital installments,
- changing the period and method of repayment of the debt,
- consolidating two loans into one.
Therefore, when you run out of funds to pay the installment, you can always count on changing the loan agreement and restructuring the debt at the initiative of the lending bank.
The new Mortgage Act imposed on credit institutions an obligation to enable debt restructuring if justified by an assessment of the borrower’s financial standing.
Changing the terms of the loan agreement on the bank’s side
Most banks reserve the right to change the terms of the contract while constructing loan agreements. The loan terms may change if the realities of the financial market in the country change, e.g. very high-interest rates prevail, resulting in a change in the cost of money.
The bank has the right to change the terms of the loan agreement signed with the client, especially the mortgage contract. The customer may agree to the proposed changes and sign the presented annex to the loan agreement.
However, if the changes are unfavorable and negatively affect the terms of the loan, then the borrower may think about negotiating them with the bank or eventually refinancing the loan. It involves the transfer of a loan from one bank to another.