Mortgage interest rates have been rising steadily for several months in a row. While five years ago mortgage rates were close to two per cent, they have now exceeded the four per cent mark for most banks. “Rates are likely to rise further in the coming months and could reach up to seven per cent. The high interest rate will not please especially those mortgage holders whose agreed fixation period expires this year or who decide to refinance. For example, the monthly repayment on a three-million mortgage for 27 years will increase by less than CZK 7,000 if the interest rate rises from two to four per cent,” calculates Veronika Hegrová from the fintech startup hyponamíru.
Housing costs are rising significantly
In recent months, not only mortgage rates but also other housing-related expenses have risen significantly. Energy payments in particular are a significant item in the family budget. Monthly gas and electricity bills have already doubled for many. Czech households now have to count on significantly higher outlays for their own housing than in the past.
Veronika Hegrová adds: “The bad news is that the Russian invasion of Ukraine will certainly lead to further significant increases in energy prices. Higher gas and oil prices always translate very quickly into higher prices for most goods and services. A further rise in the price of building materials and labour is therefore almost certain for this year. People who are planning to build or are already building or renovating their homes must therefore expect higher costs.”
End of mortgage fixation in 2022
The increase in monthly repayments will affect mainly owners of mortgages whose five-year and three-year fixations expire this year. “In some banks it is exceptionally possible to get a mortgage for less than four per cent. Given the current inflation rate, this offer is very favourable. If you want to secure this rate, do not delay negotiations with the bank for too long,” recommends Veronika Hegrová.
At the end of the agreed fixation period, you not only have the opportunity to negotiate the best possible interest rate, but also, for example, to adjust the amount of the monthly mortgage payment, extend or shorten the term of the mortgage, make an extraordinary payment, repay the entire loan without any penalties or obtain other benefits.
At the end of the agreed fixation period, you can opt to increase your mortgage. You can get extra money to finance your housing needs not only with your current bank, but also when you transfer your mortgage to another bank (i.e. refinance). The mortgage specialists at hyponamir can advise you on how and when to refinance your mortgage.
When is it worth refinancing a mortgage?
When refinancing a mortgage, it is important to keep an eye on other terms besides the interest rate. A more favourable interest rate is in many banks conditional on the agreement of another product, which may not always be advantageous. For example, repayment capacity insurance must be taken out together with the mortgage.
“It is worth considering all the parameters and calculating everything in advance. Because of the savings of a few thousand over five years, it is often not worth refinancing. In some cases, it’s better to accept a slightly worse interest rate if, for example, I know that the bank allows me to refinance my mortgage outside of the fixation without penalty, offers top-notch customer service, or I use other financial products. It always depends on personal preferences,” adds Veronika Hegrová.