One of the significant changes introduced by the new Consumer Credit Act (257/2016 Coll.) Concerns the area of extraordinary loan repayments. Bank clients have the right to repay the mortgage at any time in full or in part, and the bank has the right to reimbursement of expense. Therefore, it is not possible to set administrative charges for the client so as to discourage the repayment of the loan. "It has to be really expeditious means that the bank will be able to defend in the event of a dispute before a financial arbitrator or a court," says David Eim (Gepard Finance). In addition, these limits set the limits. "Early repayment fees may not be higher than interest that the client would otherwise have paid until the end of the fixation," adds David Eim. When repaying the entire loan, which has been running for at least 24 months due to the sale of the financed property, the costs may not exceed 1% of the extraordinary installment, but not more than CZK 50,000.
In selected situations, the mortgage can be repaid even without penalty. Every year, it is possible to pay up to 25% of the total amount of the loan over the period of one month before the contract anniversary. An extraordinary payment, whether partial or in full, can also be made within three months after the bank has communicated to the client the new amount of the interest rate. "This gives the client enough time to refinance the entire loan, which can be fully or partially repaid before the existing fixation ever runs out," says David Eim. These changes are not yet covered by all existing credit agreements. The new rules for extraordinary installments apply to mortgages that have been concluded under the law, ie 1 December 2016 or later. "Mortgages that were closed earlier will begin to govern with the terms of the new law until the beginning of the new fixation," David Eim adds, with the exception of loans with a so-called variable rate of interest, which the terms of the law began to apply immediately with its entry into force.
Example: How does an extraordinary installment of a mortgage pay?
We consider the impact of the extraordinary installment within the 5 year fixation period. It is not important to calculate an example on a full maturity basis because, for example, a 30-year mortgage may seem to change conditions several times.
• Mortgage amounting to CZK 2,200,000 with maturity of 30 years, fixation 5 years, beginning 10 December 2016.
• Interest rate 1.99% pa
• Monthly payment is CZK 8,121.
• Interest costs about CZK 205,340.
If you deduct interest from the tax base, you can save about CZK 30,800 for taxes over five years. Real mortgage costs for the five-year period are CZK 174,540 (205,340 to 30,800).
If the client repaid 10% of the contractual principal of the loan in the twelfth month, ie CZK 220,000, the installment will be reduced to CZK 7,288 per month. The cost of mortgage interest over the next five years will fall by approximately CZK 188,700 thanks to a lower principal.
In the case of a tax deduction of the interest paid, the "net" costs for the five-year period would amount to CZK 160,400 (188,700 to 28,300) after an extraordinary payment.
It can be said that the extraordinary installment of the client in this example saved about CZK 14 760 (188 700 - 174 540).
If the client did not use the savings for an extraordinary installment, but instead charged CZK 220,000 with interest of 1% pa, he would have to pay for about 4,000 CZK (from the potential extraordinary repayment of 12/2017 until the end of the fixation 12/2021) .
The actual benefit of an extraordinary installment is, after deducting a potential return, somewhere around CZK 7,200 (CZK 14,760 - CZK 7,600).
Savings from a lower installment of about CZK 833 (8,121 - 7,288) could save the client for four years and have interest, which makes only about CZK 670.
After rounding, we get the savings of about CZK 8,000 over the five-year fixation period.
Given the historically low rates at which mortgages have recently been settled, it is clear from the above example that the saving potential is currently not large for the extraordinary payment. "Of course, you can not completely generalize, but extraordinary repayments of mortgages that clients have negotiated at rates well below a 2% pa do not make as much sense as they might ever seem to be," concludes David Eim, adding that rising savings rates on savings accounts the benefits of extraordinary repayments have even decreased. According to him, however, the liquidity also has its own price, so it does not recommend to use free funds for extraordinary payments, but also to build a financial reserve in case of unexpected expenses.
Source: tz, edited editorially
