The majority of Czechs finance the purchase of their own home with a mortgage. One of the basic questions when arranging a new mortgage is the amount needed. If you are buying a new building or a property in excellent technical condition, which does not require additional expenses for repairs, deciding on the mortgage amount is relatively simple. The mortgage must be sufficient to cover the required purchase price. In the case of a mortgage to finance the construction of a house or the purchase of a property to be renovated, the situation is a little more complicated. For example, in the case of the aforementioned house to be renovated, the mortgage must be sufficient not only to pay the purchase price of the property but also for all the planned repairs.
TIP: Calculate your mortgage from the comfort of your home using the hyponamiru.cz mortgage calculator. You can arrange your chosen mortgage online.
Count on a financial reserve
Whether you decide to build a family home (self-build or contractor) or renovate an older property, the bank will require what is known as a budget cost summary when arranging the mortgage. You can use a special form directly from the bank, which will be given to you by your mortgage specialist. If you are building or renovating a self-build property, you can complete this document yourself. If you entrust the work to a construction company, request a line item budget directly from them. The prices of building materials and work have been rising in recent years, so make sure you have enough money in reserve. It also happens very often that the cost of construction or renovation is increased by unplanned construction interventions. If you have sufficient creditworthiness, take out a 10 to 20% higher mortgage. As a standard, you do not have to draw down up to 20% of the agreed mortgage amount, and banks do not charge any penalties or fees for not drawing down this part of the mortgage. The percentage of possible undrawdown may vary from bank to bank, so it is worth checking with a mortgage specialist before arranging a mortgage. For example, with Raiffeisenbank you may not have to draw down up to 50% of the mortgage, which is specific to this bank.
Increase to an existing mortgage
Generally, a mortgage cannot be manipulated until it has been terminated. It is therefore not possible to increase the existing credit limit of the mortgage, which is determined by the loan agreement. The contract also specifies the maturity, the amount of the repayment, the fixing period, etc.
If you are already paying off your mortgage and need more money, for example, to build or repair your property, you can ask the bank to increase your loan. The specific conditions vary from bank to bank and each application is considered individually. If you are not sure how to increase your mortgage, our experienced mortgage specialists will be happy to help you. You can usually apply for a mortgage increase not only during the mortgage fixation period, but also during the mortgage term. You should expect that when increasing your mortgage, the bank will again look at your creditworthiness and the value of the collateral. Even in the case of a mortgage increase, the Czech National Bank’s recommendations (note: LTV, DTI and DSTI limits) must be met.
TIP: Thinking about increasing your mortgage at the time of fixation? The mortgage specialists at hyponamiru.cz will be happy to advise you on how to proceed.
Increase when refinancing a mortgage
You can also increase your mortgage at the time of refinancing. This is a repayment of the original mortgage with a new mortgage, so it is not an increase in the credit frame. When negotiating the terms of the mortgage, you agree with the bank to increase the amount from, for example, the current CZK 2.5 million to CZK 3 million. The mortgage approval process for refinancing is the same as for arranging a new mortgage. In this case too, the bank will be interested in your creditworthiness and the value of the collateral. If you have sufficient income and offer the bank a valuable property as collateral, you will have no problem getting a higher mortgage. When you refinance your mortgage, you will usually get not only better terms but also a lower interest rate.
Arranging another loan
You can also get the money to realise your building plans by arranging a second mortgage. In addition to the existing “running” mortgage, you can arrange another mortgage secured by the same property. The two mortgages are independent of each other, so they may have different maturity periods, monthly repayments, etc. Banks also always consider the total amount of debt and the monthly repayments of all loans and borrowings when approving a second mortgage. You must also fit within the LTV limit. According to the current recommendation of the Czech National Bank, the repayments of all loans must not exceed nine times the net annual income of the mortgage applicant. At the same time, the monthly repayments on the loans must not exceed 45% of the applicant’s net monthly income. For mortgages in the lower hundreds of thousands of crowns, a slightly higher interest rate must be taken into account. An alternative to a second mortgage is a loan from a building society without a property guarantee.
It is ideal to wait 3 to 6 months after the mortgage has been arranged before arranging a building savings loan. After this time, the bank does not consider the building savings loan as a 100% mortgage refinancing. The advantage of a building savings loan is the possibility of repaying the loan over a very long period of 20 to 22 years. Building societies now offer up to one million crowns without a property guarantee. The interest rate is currently between 4 and 5%. Another financing option is a consumer loan. In this case, however, it is necessary to take into account a shorter repayment period (usually 8 to 10 years) and a significantly higher interest rate compared to a loan from building savings and a mortgage.
