How to arrange a mortgage part 3: Types of interest rates and drawing state aid
The interest rate of the loan is determined on the basis of the current interest rate at the time of signing the contract. The interest rates used by banks are based on the PRIBOR rate (Prague InterBank Offered Rate), which is quoted daily and is based on the average rates of banks on the interbank (not client) market. The amount of interest also depends on the individual financial situation of the client and on his possible entries in the debtors' registers. As for the drawdown of the loan, depending on the specific purpose, it is possible to draw it once or gradually, but always only after the registration of the lien on the property in favor of the bank.
Fixed rate - fixed for one to ten years, during which time the bank guarantees the amount of interest and state aid that was in force at the time of concluding the contract. During the fixation period, it is not possible to make changes or repay the loan early without a specified sanction. After its expiration, a new contract is signed, in which a new fixed rate for a new period is determined. The bank must notify the client of the terms of the new contract at least three months before the expiry of the fixation period.
Floating rate - changes regularly depending on the movement of interest rates and the development of the amount of state aid. In the event that bank interest rates fall, the client can save when repaying the loan, but it is not always wise to rely on positive developments. However, with the floating rate, it is possible to repay the entire remaining loan amount early without the threat of sanctions.
RPSN (annual percentage rate of charge) - an indicator that includes the total costs associated with the loan expressed as an annual percentage of the total loan amount. It is therefore a percentage interest rate increased by other fees that the client pays to the bank, or a comprehensive example of how costly his loan really is. The higher the APR, the higher the client's fees are and the more expensive his loan is, although at the interest rate it may seem advantageous. Banks are required by law to specify the APR in the contract.
State aid - interest subsidy for mortgage payments from the State Housing Development Fund. It is necessary to apply for state support directly from the bank where the client draws a mortgage loan.
Conditions for applicants:
- not exceeding the age of 36, in the case of spouses also a partner,
- a ban on owning another apartment or house (this is housing support, not real estate investment),
- the property must not be less than two years old,
- the property must be located in the Czech Republic,
- the property must actually serve the permanent residence of the applicant.
What is refinancing and when does it (not) pay off
The so-called mortgage refinancing is closely related to the anniversary of the fixation. It is no longer a matter of complete early repayment and disposal of the loan, but of its transfer to another bank in order to obtain better conditions. As already mentioned, no later than three months before the end of the fixation period, the bank will send the client information with the conditions of the new interest rate, or fees, for the next fixation period.
However, if the client is dissatisfied with the new conditions and does not agree with the bank, he has the opportunity to transfer his mortgage loan to another bank that will offer him better conditions. In such a case, the original loan will be repaid with a new loan and the client will continue to repay the same remaining part of the loan, but already in another bank with better conditions. However, it is necessary to calculate in advance whether mortgage refinancing really pays off.
The client must keep in mind that when transferring a mortgage to another bank, and therefore rewriting the lien on real estate, he will have to pay a fee of CZK 4,000 at the Real Estate Cadastre, CZK 2,000 for deleting the old lien and CZK 2,000 for registering a new one. To this must be added the large amount of time they spend on it. In the event of only a small difference in fees and interest rates, and thus saving only a few hundred a year, refinancing may ultimately be a worse option than staying in an existing bank.
- Filip Kubus
- 25. 06. 2021
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