It is worth comparing mortgage interest rates of different banks not only when choosing a new home loan, but also before the end of the fixation period of the existing mortgage. This is because you can get a better interest rate and save significantly on the interest paid. Read on to find out how to refinance your mortgage properly and how to get the lowest possible interest rate.
Most Czechs have been paying off their mortgage for at least two decades. During this time, there are usually several opportunities to negotiate a better interest rate or get some extra benefits. However, you must not miss the right moment – so be sure to keep an eye on the end date of your mortgage. Before it expires, take an early look at the mortgage terms of competing banks and compare them with your existing mortgage. You can use hyponamiru.cz online mortgage banking to quickly compare offers on the market.
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What is a mortgage refinance?
Refinancing your mortgage means paying off your mortgage loan in your current bank with a new mortgage in another bank. The main motivation for switching mortgage providers is most often a significantly lower interest rate or more favourable terms. At the time of refinancing your mortgage, you can also, for example, increase the mortgage (principal), extend or shorten the term of the loan, or partially pay off the debt for free and transfer a smaller mortgage to a new bank. Refinancing a mortgage is neither time-consuming nor administratively demanding and with hyponamiru.cz you can complete all the necessary formalities online from the comfort of your home.
You don’t have to worry about fines and penalties
If you decide to refinance your mortgage at the end of the agreed fixing period, you don’t have to worry about any penalties or interest charges. Just notify your current bank of your intention at least 30 days before the end of the fixation period. According to the Consumer Credit Act, you have the right to repay your mortgage in full at any time, even outside the fixation period. However, in this case, you should be aware that the bank may charge you for the so-called ‘reasonable costs’ of early repayment of the home loan. The current practice is that practically all banks set the amount of reasonable costs at several hundred crowns (note: practically everywhere you can fit into two thousand crowns).
Examples of efficiently incurred costs include:
- Administrative costs (e.g. office supplies consumed, postage, telephone charges, etc.)
- The salary costs of the employee who handles your mortgage prepayment request
- Fees paid to the Land Registry
- Possible fees for necessary notarial acts
When refinancing an old mortgage, you don’t even have to worry about the original bank requiring you to pay back the interest you lost or the commission paid to the mortgage broker. Banks cannot legally charge these costs.
What to do if there is a high penalty associated with refinancing
A penalty for refinancing outside the fixing period may also be included in the reasonable costs. However, you cannot find out the specific amount of this refinancing penalty in advance, as it is calculated by the bank’s head office according to the current market situation. It depends on how the bank places the early repayment money back on the market, i.e. cheaper or more expensive than the money it lent you. The amount of reasonable costs cannot exceed the interest you would have paid until the end of the fixation.
If you’re worried about a high penalty and don’t want to pay additional refinancing fees, secure a favorable interest rate with your new bank up front and time your drawdown to the end of the regular fixing date. You can start refinancing with domestic banks two to three years before the expiry of the agreed fixation period.
What to watch out for?
When you refinance your mortgage, the bank will be interested in your current creditworthiness and the quality of the mortgaged property. For mortgage loans arranged after the first of October 2018, banks monitor two new indicators, namely DTI and DSTI. If you took out an old mortgage before this date, and you do not increase the principal of the loan by more than 10 per cent or CZK 200,000 when refinancing, the bank assesses your income according to the rules in force until the end of September 2018. In the case of a significant increase in the mortgage, the new rules are already applied.
In an effort to mitigate the negative effects of the coronavirus pandemic on the mortgage market, the DTI and DSTI rules are being loosened. In early April 2020, the Czech National Bank recommended that the DSTI be relaxed to 50% and that the DTI be discontinued. So far, four banks have taken this step and more are likely to follow.
When is it not worth refinancing a mortgage?
- The interest rate on a mortgage with a competitor varies only slightly
- Your creditworthiness has deteriorated (e.g. you have a lower income, you are paying off other loans, etc.)
- There are other benefits with your current bank that you don’t want to lose (e.g. better property insurance, free current account, etc.)
Online mortgage refinancing from the comfort of your home
At least two months before the end of the fixing period of your current mortgage, start looking at the current mortgage offers on the market. Use our mortgage refinance calculator to quickly compare offers from different banks. Once you have decided to refinance your mortgage, you must first ask the existing bank to quantify the loan balance, obtain approval for the new bank to join the second charge and a promise to clear the mortgage on the property in the Land Registry.
Refinancing your mortgage is easier if you use hyponamiru.cz online mortgage banking. From the comfort of your home or office, you can see where your mortgage refinancing is at. All the necessary documents for refinancing are also submitted in this environment. You can also sign the refinancing application online, in the form of a text message. You can also order a courier to prepare and deliver the documents for signature at a pre-arranged time. You will only go to the bank once to sign the newly approved mortgage.
The following video shows what online mortgage banking looks like.