Mortgage in Prague

Buying an apartment or a house belongs to key life decisions of many people and it’s not easy to decide which financing option to choose. What should you do when buying an apartment? Is it a good time to take a mortgage loan? The essential condition of a problem-free purchase is a sufficient planning. It’s important to think of your needs and make our today’s and future requirements clear, because buying a house is a long-term investment. It’s important to find a house we can afford, not only watch ads in real estate magazines, but also go and see the particular houses/flats. This should be done at least half a year before the actual purchase in order to avoid premature purchase and inconvenient reservation contracts.

What to focus on while choosing the right financing? 

It’s good to compare a few banks and their offers. Although today we can find plenty of information online, the online rate calculators often don’t show the whole picture. Most of mortgage-comparing websites are owned by banks themselves and therefore the information provided isn’t always unbiased. If you can’t or don’t want to spend long hours comparing offers by yourself, you might like to contact a mortgage broker with good references.

 

What are standard mortgage interest rates today? 

According to the graphics of average interest rate of mortgages in Czech republic, there has never been a better time to take a mortgage. The average rates are constantly getting lower. In March, the average interest rate was 2,16% p.a. This includes all rates regardless of fixation period, i.e. also variable rates and mortgages with various loan to value ratio.

Usually you can get the lowest rate for 3-5 years fixation period. Other fixations are possible for any number of years (2, 7, 10 etc.). Shorter fixation period offers you more flexibility while the longer one assures you the same monthly payment. At the moment you can get a lower fixed rate (1,59% - 2,49%) if you can make a down payment of at least 10 - 15% of the real estate value.

Zdroj: Hospodářské noviny

 

Can I buy a house without down payment? 

Yes, but you have to expect a higher rate. The rates of mortgages with 100% LTV (with your own cash less than 10%) vary from 2,34 to 4,39% p.a., however there are banks that don’t provide these kinds of loan at all. It’s interesting to note that the Czech national bank (ČNB) declared its intention to regulate (i.e. prohibit) those mortgages with 100% LTV. Should it really do so in the future, it doesn’t automatically mean that you won’t be able to buy a house without having your own cash. There’s still a chance to finance the rest of the price by a building savings loan (special loans provided by Czech savings loan institutions) You can get up to 800 000 CZK with this loan without a collateral and even without having a previous building savings contract.

 

What about life insurance? 

Sometimes is necessary to sign a life insurance contract if you want to get a mortgage loan. Life insurance is sometimes required for a mortgage with 90% LTV or in other exceptional cases. The only obligatory insurance is real estate insurance. However, signing the life insurance contract can influence the final interest rate by 0,1% - 0,5% and there are big differences among banks. You usually get the biggest discount in a bank whose insurance is the most expensive. For instance, to get a loan of 2 millions CZK, you have to pay about 1000 CZK a month for insurance. Other banks can offer the lowest insurance of 320 CZK a month. This means that it can be more convenient to take a loan in a bank with higher rate, because the total costs  (mortgage payment + insurance) can be lower thanks to the lower insurance payment. Publishing the APCR (RPSN) is compulsory (similar as with consumer loans) and it’s good to look at it.

 

You’ll pay hundreds of thousands more with a mortgage loan, so it’s better not to take it? 

Asking how much more you’ll pay is a perfectly legitimate question, however, the nominal value that can shock you at first sight is not everything. The real costs can be lowered by tax deduction, whether you are employed or running your own business. In addition, the value of many changes over time. Taken into account the long-term inflation of 2 % (last year even lower) and mortgage rate 2,00 % p.a., in 15 or 30 years or whatever your due date is, you’ll pay in fact approximately the same amount of money as the loan. This rough calculation can be essentially influenced by inflation/deflation, mortgage rate for following fixation period or individual consumer basket.

 

Is it better to repay the mortgage as soon as possible or choose a lower monthly payment? 

Your mortgage can be repaid in a period of 5 up to 40 years. Basically you probably have one of these two attitudes. Either you prefer to repay your debt as soon as possible, because you don’t want to owe money for a longer time than necessary, or you wish to have a money reserve and choose a later due date. In the meantime you can spare or invest your extra money and put them aside just in case. Mathematical models based on historical trends on financial markets see the latter option as more convenient. However, the investment revenue is never secure and only you know, whether you’ll be able to really invest your extra money or you’ll rather spend it.

 

Unusual kinds of mortgage loans 

The common model of a mortgage loan looks as follows: you buy a house to live in (or to let it) and prove the bank your income (from your job or business). In this case you can expect the interest rate of around 2%, as mentioned above. However, there are many other types of loans on the market, for instance:

• without proving your income - in this case you can take a loan of around 50 - 60% of the real estate value and can expect a higher rate (1,84% - 4,51% p.a.)
• non-purpose or so-called “American” mortgage. If you have a real estate as a collateral and enough income, you can take a loan for anything. The rates are usually higher (3,74% to 7,59% p.a.)
• housing association flat financing. All banks can give you a mortgage loan, but you need another real estate as a collateral. Then there are a few banks which don’t require another collateral, but the actual flat has to be transferred to private ownership no later than in 2 years.
• pre-mortgage loan, which is also often used for financing a housing association flat. It can also be convenient when you buy a brand new house from a developer who wants the money before the house is actually built (and can serve as a collateral).
• bridge loans. You might use this kind of loan if you already own a real estate and want to buy another (bigger, more expensive one) without having your own cash.

 

Ondřej Marek, ondrej.marek@sbelter.cz

http://www.refixace.cz/expats/