A mortgage is a special type of loan which is frequently used to buy property. The main difference between the mortgage and other loans is that you must always put property into pawn. Last year the Czech Republic had the lowest interest rates on the mortgage market in history. Now they are increasing each month, but it still is possible to arrange a mortgage with an interest rate about 2 %.
Basic necessary conditions
- Confirmation of your income from the employer / the last 2 tax returns if you are self employed
- Temporary / long term / permanent residency
- Two personal identification cards – passport, permanent / long term / temporary residency
- A bank always checks the debt registry
- Czech ID – rodné číslo (comes with your residency card)
- Employment contract for an indefinite time period
- The property that you pawn must be approved by a bank assessor. It is not frequent, but if you buy a property which is overpriced there can be a difference between the property price and the real value due to estimation.
Conditions for EU residents are very similar to those for Czechs. As for non-EU citizens, it depends on which country they are from and how long they have lived in the Czech Republic. Gettig a mortgage is always a very individual process.
LTV – the most imortant factor
LTV stands for loan to value. It is a difference between the real property value (according to the bank estimate) and the amount which a client wants to borrow. A lower LTV means a better interest rate. For example: The value of the property is 3 000 000 CZK, client wants to borrow 2 600 000 CZK, LTV is 80 %. At this time you can borrow a maximum of 90 % LTV.
Differences in the market
Most people apply for a mortgage in the bank where they have a bank account. It is not true, though, that as clients of the bank they get better conditions. There are over 10 banks on the market offering mortgages. It is a good idea to compare more bank offers – or hire a financial advisor to do it for you.
How important is an interest rate
Some banks offer a lower interest rate than others. But it may be dependent on getting additional products such as bank insurance, credit cards etc. You pay extra money for these so in the end such offers can be very expensive!
A mortgage and taxes
When you buy a property, you always must pay 4 % tax from the purchase price. You also need to register with the financial office and pay real estate tax each year. The amount of this tax is, again, very individual. Some good information at the end: you can save on taxes and reduce your annual tax base by the portion of the interest rate you’ve already paid off!
Tomáš Ryšánek is a financial expert from Pafin.