How to Get a Cheaper Mortgage and Save Money in the Process

At its meeting at the beginning of May, the CNB Board reduced its base rate by half a percentage point to 5.25 percent. While this year it was reduced by 1.5 percentage points, according to Swiss Life Select analyst Jiří Sýkora, banks reduced interest rates on mortgage loans by only half a percentage point. “The road to cheaper mortgages, and therefore cheaper houses, is still full of potholes,” he said.

Sýkora basically explains a small, gradual discount on mortgages because banks create a cushion for cases where the client pays the loan early. From September, banks will be able to charge a fee of 0.25 percent of the early part of the loan that was repaid for each year that started remaining until the end of the rate setting for early repayment the mortgage during the rate fixing period.

However, not more than one percent. The banks asked that the penalty be two percent. Nevertheless, depending on the amount of early repayment, they will collect tens of thousands of crowns, and so far they can only ask for payment for reasonable administrative costs in the order of a hundred a crown

From the start of September, however, this will only apply to contracts negotiated after this date, whether they are new mortgage loans, re-mortgage financing, or renegotiated rates. According to experts, mortgage restructuring can now pay off for many people.

Experts expect more demand for mortgages to come in in the coming weeks and months. “Clients want to take advantage of a relatively favorable situation when interest rates are falling, but at the same time real estate prices are not increasing significantly. At the same time, they are also affected by the fact that by signing before September 1, they will still be confirming the existing conditions for the mortgage,” said Sirius Finance analyst Lucie Drásalová.

According to her, interest rates for final mortgage applicants will not decrease as quickly as experts expected after the first quarter of this year. “Due to the increase in money prices on the interbank market, banks will be more cautious in cutting more sharply. So I wouldn’t expect a big drop in rates until the summer. At the end of summer, however, domestic banks will want to prepare for a strong annual harvest in terms of demand for mortgages. I personally assume that we will end this year at a rate of 4.3 percent to 4.5 percent,” said Drásalová.

Also, according to other experts, the increase in rates on the interbank market stopped the expected discount on mortgages. “Despite the reduction of the repo rate by the CNB, there was an increase in three-year and five-year swaps. (forward contracts to pay an agreed interest, or the difference between them), which has a significant impact on the determination of bid prices. Because of this, there was no corresponding drop in mortgage loan rates,” explained Jan Brejl, business director of Partners.

However, according to him, there is no doubt that mortgage rates will fall in the coming months. “We can expect the level of rates to reach a level of four percent. Considering this, I recommend waiting for the refixation of the mortgage to one or two months before the end of the interest rate. For new mortgages, I recommend choosing a three-year interest rate setting for both refinanced mortgages and new mortgages,” he said.

Sýkora sees it the same way. “The choice of fixation is always very individual and can be influenced by several aspects. But if we look at such an option from a purely economic point of view, at the moment the most suitable option is around a three-year position,” he said.

“I expect that rates will continue to decrease in the coming months. However, the rate of decline will be lower than was estimated just a few months ago. It always depends on the specific situation of the given person, whether or not a mortgage can be taken now, or how long to repair it, because general advice does not work well,” said an analyst XTB Jiří Tyleček.

“As far as the situation is concerned, unlike in the past, I don’t expect the length of settlement chosen now to have a major impact. Although, we are talking about the level of market interest rates over the horizon of several years, so the level of uncertainty is great. However, I personally believe that we can count on a reduction in rates. So I wouldn’t be afraid of shorter arrangements. But for those who prefer certainty, the main option for them will always be a longer settlement,” the analyst said.

Due to an increase in the price of money on the interbank market, according to Tyleček, a few weeks ago there was a risk that mortgage prices would even rise. “In some cases, banks even had to reach their margins to maintain favorable rates,” he said.

Now, however, according to Tyleček, there is a correction on the interbank market and the situation looks more favorable for mortgage applicants. “The fall in the price of money on the interbank market is related to the situation in the US. Voices have begun to be heard that expect a further drop in interest rates again. The latest bad data from the US labor market added to the heat. The position and expectations of the development of Fed rates affect their global level. Czech domestic factors now play only a small role,” said Tyleček.