Mortgage FAQ

Mortgage FAQ

If you’re considering a mortgage, definitely check Mortgages.cz where you can get the very best rates in the Czech Republic for mortgages.

Is it advantageous to buy an old or new flat/house?

This is a quite difficult question what is more advantageous, safer or quicker – each option has its pros and cons. The requirements and possibility of the buyer will determine in the end the decision. Generally speaking when buying an old flat / house there is a certain risk involved and such a purchase will demand different questions to be asked – e.g. the condition of the whole real estate (not only of the flat), the roof, the elevator, windows and other shared spaces. Will I have to count with additional expenses not included in the purchase price?

 

Compared to that a new flat / house has approx. 2-3 years

guarantee covering all potential problems and investments.

However, the purchase price of a new flat / house will be

higher and sometimes one may not have the choice (e.g. in

the city center).

 

 

Ř      What is important to know when I finance a flat or a house with a mortgage loan?

You need own equity (this part of the purchase price, that you will finance with your own money of at least between 25% and 35%). These percentages are based on the evaluation value of the property. If the evaluation is lower than the purchase price, then you have to cover this difference as well with your own money.

You need an independent income, which you have to prove. The installment should not be higher than about 30% of your net income. In the case that the property is already rented and the rental income is about 120% of the monthly installments, you don´t need other income sources to be checked.

 

Ř      Has the property always to be taken as collateral when being financed through a mortgage loan?

It is given by the law: as collateral for a mortgage loan, it always has to be a real estate, but not necessarily the one to be financed. One may also choose another real estate as collateral provided that this one covers the loan amount sufficiently.

 

Ř      What is the maximum lifetime of a mortgage loan (term of loan)?

The lifetime of a mortgage is 5 to 25 years. Shorter loans can save you a lot of money in interest payments over the life of the loan, but your monthly payments will be higher.

 

Ř      Which lifetime / maturity should be chosen?

The maturity has a direct impact on monthly annuity  payments, which includes interest and amortization.

 

Repayments for a CZK 1 mil. loan with a 2.99% interest rate fixed for 1 year (example Česká spořitelna)

Maturity

5 yrs

10 yrs

15 yrs

20 yrs

25 yrs

Monthly Repayments (CZK)

17,964

9,651

6,901

5,541

4,758

 

The longer the maturity the lower the monthly payments are and the more accessible the loan is. So if you are not in a position to afford higher monthly repayments you should rather choose a longer term. However bear in mind that a longer maturity goes hand in hand with higher total interest costs.

 

In the example mentioned above, the monthly payments will be CZK 5,541 for a CZK 1 mil. Loan, when choosing the 20 years maturity. Overall interest costs will come up to cca. CZK 1.33 mil. after 20 years.

 

When deciding for the 15 years option the monthly payments will be CZK 6,901 and the client will pay total interest CZK 242,000 only – which is much less compared to the 20 year loan facility.

 

The final maturity chosen for your particular case should be a compromise between the fact what you are willing to pay the bank on interest costs and the level of monthly repayment rate you can afford.

 

Ř      Is there any initial deposit required when asking for a mortgage loan?

The minimum amount of the deposit starts by 25% of the overall investment costs. This means the maximum amount of the mortgage loan is 75% of the price of the property. But this can deviate from case to case.

 

Ř      What documents are needed for applying for a mortgage loan?

o       Documents related to the real estate (has not to be necessarily the one being purchased)

§         Original snapshot of cadastral map, including possibly the geometric plan only if you build the new property

§         Original copy of the real estate register – including purchase contract or deed of donation

§         Real estate appraisal (appraiser must be acceptable for the bank)

§         Original contract of the insurance contract covering natural risks we offer to arrange new insurance policies in the Bank

o       Documents for the financed subject (purpose of the loan)

§         Purchase of real estate:

          Original copy of the contract, the draft contract or pre-purchase contract.

§         Investment in a real estate to be let:

          Calculation of revenues from and expenditures for rented premises

          Original copy of lease contracts or future lease contracts

o       Proof of income of all co-applicants, potentially other persons in case of guarantors

§         Employee: average net monthly income for the past three months, employment contract

§         Self employed: tax returns of the last two taxation periods, eventually account statement

§         Other documents proving income e.g. lease contract

§         Confirmation about monthly obligations (loans, leasing etc.)

Ř      What interest rate can one expect when asking for a mortgage loan?

Several factors affect the mortgage rate: amount of loan, length of loan, down payment, credit quality, income level.

Actually banks are offering only fixed interest rates. The rate can be fixed for 1, 2, 3, 4, 5, 10, 15 or 20 years.

 

Ř      Is there a kind of sanction when the loan is paid back earlier than initially planned?

If for example the interest rate was fixed for 5 years and the loan is paid back after those 5 years you will not have to pay a sanction for premature repayment. However, if you make a premature repayment within those 5 years you will have to pay a sanction fee.

 

Ř      Is there a minimum monthly down payment?

It is only your installment.

 

Ř      How I can find an evaluator?

The bank you want to work with will provide you a list of evaluators, they are cooperating with. Only these evaluators are accepted from the bank.

 

Ř      Can foreigners buy property in the Czech Republic?

Although it used to be almost impossible EU accession paved the way to enable in first case for EU citizens to purchase property in the Czech Republic. However, this does not mean that it is impossible for non-EU citizens.

Let us have a look at the details according to Czech law:

o       no restrictions for non-EU citizens having a permanent residence in the Czech Republic;

o       no restrictions for EU citizens with a permanent or temporary residence in the Czech republic (license) except for agricultural purposes;

o       limited possibilities for all foreigners with no residency in the Czech Republic (only possible through a Czech Single Purpose Company, so called S.R.O. – this company is set up for the specific purpose to purchase a real estate)

 

A little bit confused? Don´t worry – if you want to discuss your specific situation and possibilities visit the Expat Center of Česká spořitelna whose advisors are specialized in servicing foreigners living and property investment in the Czech Republic. They will be pleased to assist you to find your individual solution!

 

Ř      How long it takes to get the mortgage?

If you have all required documents, the preparation of the application and the approval in the bank takes about 2 weeks, another 5 business days for the contracts´ preparation.

 

If you want to assess your own situation beforehand you can put your individual data into the mortgage calculator, which will give you a first impression how it can look like in your case.

www.csas.cz/bydleni/application?pageid=hypocalc

 

However please bear in mind that a mortgage loan is a very individual product and a consultation in person is always helpful – we would be pleased to assist you with your housing or investing wants and needs!

Also read:  A new Prague flat now costs almost 15 years’ worth of wages





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