The bank defines exactly what the mortgage can be used for. In most cases, people apply for special-purpose mortgages, for which the bank must be informed in advance how the funds will be used. There are many possibilities. Currently, mortgages are most often used to finance the construction of houses or the purchase of new or older freehold properties for permanent living. Of course, a mortgage can also be used to finance the purchase of building land.
Mortgage for a cooperative flat vs. a flat in private ownership
In addition to privately owned flats, real estate agencies also offer cooperative flats. If you are thinking of buying a cooperative apartment with a mortgage, you should take into account that this apartment cannot serve as collateral for the bank. In these cases, you must secure the mortgage with another freehold property (e.g. your parents’ freehold flat or house). If the cooperative flat is transferred to your personal ownership during the mortgage repayment period, you can then offer this property to the bank as collateral. If the buyer knows in advance that the cooperative flat will soon be transferred to personal ownership, it is possible to use a so-called pre-mortgage loan. Once the flat has been transferred into private ownership, you apply to the bank for a standard mortgage.
Financing the renovation with a mortgage loan
When buying an older property, it often takes a significant amount of money to renovate, modernise, rebuild, extend or add on to it. In all these cases, it is possible to use a mortgage. In recent years, there has been a growing interest in holiday properties in the Czech Republic. Those who do not have enough financial means of their own can finance the purchase of a cottage or chalet with a mortgage. The condition is that the cottage or chalet purchased must meet the conditions of year-round use. It must have sanitary facilities, a kitchen, heating, water and electricity connections and an access road. It must also have a registration or description number and be on land owned by the property owner. You can guarantee the bank with the cottage or chalet you are buying, as well as with another property you own.
A mortgage can also be used to pay off an inheritance where several heirs have a legal claim to the property and one of them agrees to pay off the others. After a divorce, it is also common to use a mortgage to settle the marital property, where an agreement is made to pay each other out.
Towards the end of the mortgage term, some people may decide to take advantage of a better mortgage offer from another bank. In this case, the mortgage is refinanced, i.e. the existing mortgage loan is repaid with a new mortgage loan.