Mortgage refinancing will be more expensive
Updated: Sep 13
If you're thinking about refinancing your mortgage in the future with no costs, we have a bad news for you.
The current law is allowing clients to refinance early, even outside of the fixation period for very limited or almost no costs - this is about to change.
Who is this article for?
Anyone who has a mortgage with interest rate > 3% and everyone who is planning to take a mortgage in the next 1-2 years.
What will change?
Refinancing outside of fixation is due to carry up to 2% possible penalty fee for the bank.
This change would impact all mortgages, even those already signed.
What will remain?
The option to refinance for free at the end of fixation period, paying 25% of the mortgage for free each year and most other paragraphs remain intact.
Is this a problem?
Well, not necessarily. This article is to inform everyone that until recently, almost zero costs to refinance were expected when we were selecting the fixation period. I was saying that "you can fix for longer and refinance sooner anyway". The same is still truth, but a fee is expected on the way.
Is it worth for me to refinance even with a penalty?
First of all, this amendment of the law is not yet approved at all, we do not know if it will be done in a way is being communicated. But if it would be, let's imagine the following:
"you fixed your mortgage now at the rate of 5,5% for the next 10 years. In year 3, the rates are going down to 4%. Is it work it for you to refinance? Yes. Although you would pay 2% penalty to the original bank, the new interest rate will pay off from the next year. Simply - you have to pay 2% one off to keep saving 1,5% per year.
Fancy reading more? See below the thoughts of the author:
That was my feeling when I read the suggested amendment of the Consumer loan law for the first time.
You probably know, that by the law you can repay up to 25% of the whole mortgage amount every year for free. That is clear. You can also sell the property and after 2 years, the bank cannot charge more than 1% or 50.000 CZK as an exit penalty, that is also clear.
What was not clear in the law though, was one specific paragraph. §117, 257/2016, article 2, saying "In the event of early repayment of consumer credit, the creditor shall be entitled to reimbursement of the sensibly spent expenses incurred in connection with early repayment."
This grey zone of the law was a problematic one and as I covered in this video, over the time banks tried and then after intervention of the ČNB they stopped charging the missed interest - the the "sensibly spent expense". The ČNB was simply saying - "you should charge only admin costs to the clients" - and the banks listened.
At this moment, to our best understanding, there is no bank charging any missed interest and are really only charging admin costs, if you want to refinance anytime, even during the fixation. That is great for the customer, since you can get rates 5,5% fixed for 10 years, and then, when the rates get lower (lets say in 3 years), you can refinance almost free of charge.
That is still true today, but as you can guess, banks do not like this and right now, there is draft of the amendment of the law, which is supposed to make the odds a bit better for the banks.
What is it all about? Right now, you can still refinance prematurely with minimum costs. This new amendment of the law is speaking of main 2 changes:
banks could charge also the missed interest until the end of fixation, however no more than 2% of the repaid amount
this would apply also for loans signed before this date of change of the law
It is the latter which made me quite surprised. Until now, I would not think the law can be updated in this retroactive way, however it seems like this is the plan. It means that, unfortunately, clients who signed mortgages now and would like to refinance in few years early (meaning not at the end of your fixation but lets say in year 3 out of 7), for them their banks shall be entitled for the compensations of up to 2%.
Important to say, is that this is only a draft of the amendment of the law! I sincerely hope they will get rid of this retroactivity during the approval process, there are still X amount of stages which the amendment of the law has to go though. "
What is the summary from all of this? I am afraid we just need to wait. To be honest I really do not like politics and it seems like this is their game now.
Once the amendment of the law is drafted in the final way - we will bring the news one more time to bring this to attention.
Thank you for understanding