Options for the early repayment of the mortgage
Every client who is about to take a mortgage loan is interested in the options for the early repayment of the mortgage. Together with the interest rate, early repayment options are one of the most important factors in deciding which bank to take out a mortgage loan from. I have not had a single client who did not ask about this in my career.
Let’s get to the point: everyone is particularly interested in the possibility of early repayments free of charge, either for part of the loan or the whole loan. Then there is a question of early repayment fees beyond the deadlines when they are free of charge.
The good thing is that, in principle, every bank allows you to repay some or all of the mortgage loan free of charge, but each has different rules. Likewise, almost all banks allow early mortgage payments at any time and also beyond the “free of charge” periods, but for a fee.
Options for the early repayment of a mortgage with a fee:
Some banks have a specified percentage of the amount of early mortgage repayment, and some have a formula they use to determine the fee. The formulas are similar, but only a small difference in them can multiply the fee. To calculate the fee, it is sometimes important the particular day of the year when you make either a partial installment or repay the entire mortgage loan, and sometimes it does not matter at all. In general, the closer you are to the fixation anniversary, the lower the early repayment fee is. Sometimes the fee is included directly in the contract, and sometimes there is a link to the price list. Other times, the fee is stated in the contract, but what is in the price list is true.
Options for the early repayment of a mortgage free of charge:
The rule is that either on the anniversary of the fixation or the loan, the full mortgage can be repaid free of charge. The possibilities for extra payments are more varied. If the bank allows an extra payment free of charge, the difference is also the following: whether the bank takes into consideration the balance or the original amount of the mortgage. If the balance of the mortgage, which balance – the current one or to a predetermined date? Some banks allow the repayment of any part of the mortgage free of charge on the anniversary of the fixation and some on the anniversary of the mortgage loan. Some banks have the possibility for partial early repayments limited to a specific day of the year and others give more flexibility regarding the early repayment date. Sometimes you can make more early repayments during the year free of charge, and sometimes only one,... when choosing, it depends on what is important to you!
If we go further into the details, the following question may arise: whether there is any other charge associated with the early repayment of the mortgage free of charge, for example, for changing the conditions of the contract or for submitting an application...
Are you lost in a number of options? Do not worry about it. The good thing is that you can familiarize yourself with the principles, you just need to understand them and follow the changes that banks make in this area. The independent mortgage specialists can help you with it, you just have to tell them your requirements.
When choosing a suitable bank for you, from the point of view of early repayment options or the complete early repayment of the mortgage, it depends on the nature of the mortgage. Whether it is a mortgage for your dream family home which you are going to build, for example, after a few years of living in a block of flats, or for buying a single apartment for your business, or for your first flat to start your own life. Then, it depends on your real options for early repayment – most people are too optimistic about taking a mortgage. They believe that, for example, they will repay 10% of the loan in the second year, but the reality is that only few are able to. It also depends on your attitude towards the early repayment of the mortgage – for some people, it is basically utter nonsense while other people do not like having any debt...
For example, if you plan to build a house, and you barely fit into the budget with a mortgage, and there is no possibility of inheritance on the horizon – you should rather focus on the interest rate than on early repayments. If you are buying a business apartment and you want to sell it as soon as real estate prices go up, the interest rate usually comes after early repayments, which are very important in this case – the essential thing is the most flexible option to repay the entire mortgage loan free of charge. There can be as many examples as clients. In this article, I have looked into some of the most important principles in choosing your mortgage bank in terms of early repayments. Our mortgage specialists will gladly help you with the correct choice in the spirit of “people to people.”
Kamil Bučo, 12.05.2009
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