It has been a few months since the Czech National Bank issued an opinion on the costs of early repayment of a mortgage loan. Banks and building societies were certainly not pleased by this opinion, but they started to follow it almost immediately.
What’s going on?
From 1. 12. 2016, a new law regulating the terms and conditions of mortgage loans is in force. This law went to the benefit of us consumers. For example, we can repay up to 25% of the original mortgage amount each year without any penalty. However, this does not only apply to new loans, but also to loans that have since entered a new fixing period. Floating rate mortgages were immediately affected by this law.
At the beginning of 2019, the CNB issued an opinion in which it clearly defines what a bank can and cannot charge as a cost for early repayment of a loan. The opinion applies to loans contracted or refixed as of 1 January 2011. 12. 2016 and later. Therefore, if a mortgage loan is repaid early outside the anniversary of its fixation, the bank can no longer charge a penalty of hundreds of thousands of crowns as in the past. The current amount of the fine for early repayment of the loan is thus in the order of several thousand crowns. The most common is around 1,500 to 2,000 CZK.
What’s in it for me?
It is the low penalty that opens up the possibility of refinancing the mortgage loan. Current interest rates range from just over 2%. So if you have a mortgage with a higher rate, it can definitely pay to do a little research. Basically, you just need to compare whether the interest rate offered is lower or higher than the current solution. In order to compare comparables, we need to distinguish between offers with or without repayment insurance, as well as looking at the current loan. In most refinancing cases, the new bank will not charge an appraisal or other fees. It is very likely that this will be possible even without new proof of income.
To give you an idea, the 0.5% saved on the original interest rate will make a difference of around CZK 300,000 on a CZK 3 million mortgage over a 30-year term.
If you wish to make a no-obligation quote, please use any of the contacts below and I will be happy to look into it with you.
