When arranging a mortgage, all contractual documentation must be carefully studied. The key document is the mortgage contract, which, in addition to the parties to the contract, describes in detail, for example, the terms of drawing down and repaying the mortgage, the amount of the mortgage, its maturity, the fixation period, the amount of the agreed interest rate and a detailed identification of the mortgaged property. It is also worth consulting the bank’s price list, which lists all the fees associated with the home loan. For example, the price list will tell you how much the bank will charge for sending you a reminder if you default on a payment or how much interest will be charged on late payments. Now, let’s take a look together at the fees, fines and penalties that banks can charge you in different situations.
TIP: Our mortgage specialists will be happy to go through the various contract documents with you online (by phone, email), explain everything in detail and answer any questions you may have.
Penalties for not taking out a mortgage
When buying a property, be careful about the treatment of contractual relations between you, the intermediary (real estate agency) and the seller. If you are buying a property through an estate agent, make sure they have signed a three-way booking agreement with the seller beforehand. In this contract, mutual contractual penalties can be applied in case of non-compliance with the agreed obligations. If the seller changes his mind about the deal for any reason, you are entitled to financial compensation. To avoid unnecessarily risking penalties for not taking out a home loan, have a purchase agreement or a contract for future sale already signed before signing the mortgage contract. The bank can charge you a penalty of up to 5% of the undrawn amount for not taking out the mortgage.
Penalties for mortgage default
Especially for mortgages for the construction or renovation of a property, you may not use the full amount of the approved loan. You may find yourself in this situation, for example, if you save significantly on materials compared to the planned construction budget or if you secure part of the construction work cheaper with your own help. Although it is advisable to have a financial reserve for unexpected expenses in the case of renovations, it should be reasonable. If the mortgage is not drawn down beyond 20%, there is a 5% charge on the unused amount.
Example: Mr Procházka has arranged a mortgage of CZK 4 million for the construction of a family house. In the table below, it is calculated that if he does not draw, for example, CZK 600,000 from the allocated mortgage, he does not have to worry about a penalty from the bank. However, if he did not use CZK 1 million, he would have to pay a penalty of CZK 10 000 on the unused part of the mortgage.
|Unpaid part of the mortgage||600 000 Kč||1 000 000 Kč|
|Amount of the penalty for under-spending||0 Kč||10 000 Kč|
Note: Without penalty 20% of CZK 4 000 000 = CZK 800 000. Calculation of the penalty (1 000 000 – 800 000) x 0,05
Mortgage default penalties
Once you’ve arranged a mortgage, keep enough money in your bank account to make regular monthly mortgage payments. This is because if a payment doesn’t go away, the banker will soon alert you to the default. Some banks will first alert you to a missed payment by text message. If you still fail to pay the instalment despite this reminder, you will receive a reminder by post. Banks usually charge CZK 100 for the first reminder and CZK 500 or more for the next one. The sooner you pay the amount you owe, the better. The bank may (but does not have to) charge you a penalty for late payment of the loan and interest on late payment based on the contract. However, banks usually do not charge a penalty for short-term delays of a few days and small amounts owed.
In the event of a long-term default on the mortgage, the bank will start to recover the money borrowed. The bank will not only demand payment of the unpaid part of the principal, but also any additional charges. This mainly means interest on the loan, default interest, penalties, fees and costs associated with the claim. Default interest is set by law and is determined by the sum of the current 2T Repo rate and 8%.
Penalty for early repayment of a mortgage
Before the amendment to the Consumer Credit Act (No. 257/2016 Coll.) came into force, there was a high fine for early repayment of a mortgage. Banks routinely charged up to 10% of the amount repaid early. Today, if you sell the property (after 2 years from acquisition) and you pay off the entire mortgage outside the fixation period, the bank can charge you a maximum of 1% of the amount repaid early, but not more than CZK 50,000. If you sell the property within 2 years of acquisition, the bank can legally charge you for so-called “reasonable costs” (e.g. the cost of the bank employee who handles the early repayment with you, the cost of printing and copying documents, postage, fees paid to the Land Registry or notary fees).
According to hyponamiru.cz’s experience, refinancing a mortgage before the fixation period expires is charged only a few hundred crowns. The topic of early repayment is covered in detail in the article Early repayment of a mortgage.