Mortgage, or mortgage loan, is for many people the only way to finance their own apartment or house. The price of the mortgage is influenced by the interest rate, the period of fixation of interest, the total repayment period and other parameters. What is important is the client ‘s ” creditworthiness ” – his ability to repay the loan.
Today, however, the mortgage does not have to finance only the purchase of housing, but also the reconstruction of the current property. In addition to classic home mortgages, you can also draw a non-purpose American mortgage. It can be used for anything. These non-purpose mortgages are currently offered by both banking and non-banking companies. US mortgages with non-banking companies are often used by people who have been rejected by banks. Non-bank mortgages tend to be more expensive than conventional mortgages.
The applicant should compare available mortgages and make use of mortgage calculators on the Internet before making a final choice. Comparing mortgages and studying the conditions will help the applicant to choose the cheapest and most advantageous mortgage according to his requirements and possibilities.
It should be added that mortgages and, together with them, building savings loans make up the majority of the total debt of the population in the Czech Republic. The total debt of the population is constantly growing, but the repayment problems are decreasing.
How mortgages work
How much money a bank lends to a client depends on the value of the mortgaged property. This means that the mortgage must be secured by a lien on the property (flat or house). The client usually wants to finance this property with a mortgage (either purchase or reconstruction). However, the pledge may also be another property (such as a cottage), but must be in the Czech Republic.
A mortgage is usually not enough to finance the purchase of a property. The client must have a certain amount of money saved. This is because banks no longer provide 100% mortgages. Thus, the applicant will no longer receive a loan that would be worth the property. Tzvi. the ratio of loan-to-value (loan to value ratio, marked LTV) is 70%, 80% and 85% in exceptional cases. As a rule, the higher the LTV , the higher the interest.
Often applicants also confuse the value of the property and the purchase price of the property. The value of the property is determined by the appraiser (often a bank) when estimating the property. It may happen that the appraiser determines the value of the property is lower than its purchase price in the market.
Mortgage interest rates
When choosing a mortgage, applicants are primarily interested in interest rates. The offered interest rates are not final, they are negotiated ( fixed), only for a few years. As for the floating mortgage, it is linked to some of the interest rates of the Czech National Bank and does not work as a fixed mortgage.
Mortgage payments will burden the family budget for several years. It pays to know in advance how much to pay monthly. A mortgage calculator will help you calculate your monthly payments and interest rates and APR.
How much the client pays for the mortgage is influenced by a number of factors, especially:
- Fixation length – fixed fixation period vs. fixation period floating rate
- LTV – the higher the loan-to-property ratio, the higher the interest rate
- Duration of repayment – the length of repayment affects the amount of monthly repayments and the total amount repaid
- Loan Purpose – Purpose mortgages are cheaper than US mortgages
- Other charges – such as a handling fee or an account maintenance fee
The length of fixation varies in mortgages. For fixed-term mortgages for a fixed period (for example, 5 years), the interest rate is the same. After the agreed fixation period, the client and the bank negotiate a new rate. Another option is to refinance the mortgage at another bank after the fixation period.
In general, mortgages with shorter fixations have a lower interest rate.
Mortgage interest rates are a frequently discussed topic at present. The end of 2018 was in the interest of rising interest rates, which caused a significant decline in interest in mortgage loans. At the beginning of 2019, the situation began to reverse and interest rates reached lower levels. Although mortgages have become cheaper, interest in them continues to decline. This is mainly due to high property prices and the regulation of the National Bank.
What can be financed by a mortgage?
A classic special-purpose mortgage can only be used to finance housing.
Housing financing means:
- real estate construction
- purchase of a real estate
- reconstruction of the property
- modernization of real estate
For a less expensive reconstruction, a building savings loan pays off rather than a conventional mortgage. If a person has building savings, this type of financing may be more appropriate for him. If all the conditions for providing a building savings loan are not yet met, it is possible to apply for a bridging loan.
Currently, even building society loans offer lower interest than mortgages. It can, therefore, be paid with this loan to finance the residual value of the property, which is not covered by a mortgage.
A US non-purpose mortgage does not have to be intended solely to finance housing. However, the property is still needed to pledge the bank. US mortgage funds can be used for anything. The amount of funds depends on the market price of the property. Unlike conventional mortgages, banks lend less, usually around 70 % of the value of the property.
The criteria for achieving an American mortgage are similar to conventional mortgages. In addition to the client’s creditworthiness, American mortgages are viewed in the register and income is documented. Currently, there are also non-bank US mortgages without a register and no proof of income (as well as non-bank loans without proof of income ).
Advantages of American mortgage:
- Money can be used for anything
- Thanks to the bank’s mortgage on real estate, it is possible to borrow significantly more than other loans
- low monthly payments due to long-term mortgage repayment
- low-interest rate compared to consumer loans and other loans
- the possibility of refinancing an American mortgage
But American mortgages are often associated with high mortgage negotiation and maintenance fees. Some banks offer a fixed amount of money, so they offer significantly less money than the value of a mortgaged property. To get the best American mortgage, you can calculate your monthly payments, the amount you borrow, and the total amount you payback.
Mortgage for a cooperative apartment
Due to the fact that cooperative flats tend to be cheaper, many mortgage applicants are targeting them. However, getting a mortgage for a cooperative apartment may not be easy. One of the conditions for obtaining a mortgage is that the applicant must guarantee the property. And in the case of a cooperative apartment, the client buys only the membership share, not the apartment itself. The client cannot use this flat as collateral for obtaining a mortgage.
The prices of cooperative flats are lower, but often they do not have an annuity paid or it is necessary to repay a loan for thermal insulation of the whole house. Also, do not pay tax on the acquisition of immovable property, as it converts only cooperative share, not the actual ownership of the apartment.
A number of banks already provide a mortgage for a cooperative apartment.
There are also other ways to get a mortgage for a cooperative apartment:
- Pledge of another real estate
- Pre-mortgage loan
- Combination of different loans
If the borrower does not own any property, it can help family members who own property (eg. The applicant shall state the property of parents with their consent). After the transfer of the cooperative apartment to private ownership, the purchased apartment is additionally used as collateral property. The amount of the loaned amount for a cooperative apartment is determined by the bank.
The pre-mortgage loan is more expensive than a regular mortgage and can be granted for a maximum of 2 years. This is a short-term solution until the apartment is transferred to private ownership. Then the client builds on a regular mortgage loan. It is concluded at the same time as the pre-mortgage loan.
It is also possible to use loans, which do not have to be pledged as a building savings loan and combined with other special-purpose loans.