Some banks charge hundreds of thousands of fees for early mortgage repayments. Others only a few crowns. The reason is the different interpretation of the Consumer Credit Act. Although this issue is much being addressed between the banks and the Czech National Bank, the discussion is still without clear rules. And so more and more banks are becoming more expensive, “for sure”. Now Česká spořitelna, which has the most clients in the country, will also increase the fee.
According to an estimate by the Czech Banking Association, about 180,000 people repay their mortgages early each year. Often because they want to refinance it with another bank offering more favorable interest rates. Or they come to the money and repay the loan.
However, most banks charge fees for early repayment of the mortgage outside the period of the end of the fixation. Some are a few crowns, others are hundreds of thousands. Hospodářské noviny recently warned to the unpleasant experience of a client of Komerční banka, who paid over 230 thousand crowns in the fee for early mortgage termination in the amount of 4.5 million crowns after two years.
It was a quantification of the so-called purposefully incurred costs. The bank claims that its approach to the calculation is correct and complies with the Consumer Credit Act of 2016. However, its interpretation of the law is different from that enforced by the Czech National Bank. Last year, it recommended that banks not apply for reimbursement for purposefully incurred costs that they incur with the cancellation of the loan, but only administrative costs.
“In our opinion, the purposefully incurred costs in connection with the early repayment of a consumer loan include not only administrative costs, but also interest costs with regard to the economic nature of interest rate fixation. The bank must obtain funds for the client for the selected interest period to provide the loan. , which is unchanged throughout the agreed interest period, “explains the higher fee of Komerční banka spokesman Michal Teubner.
It is in the interpretation of what belongs to the purposefully incurred costs, the whole problem lies. Therefore, banks are now intensively discussing with the central bank and trying to find a solution ideal for both parties, ie banks and clients, and to give it the form of a legally binding interpretation. There will probably be more applicants for early repayment in the coming months. People will try to save even more due to the coronavirus pandemic, and lower payments at a competing bank will be tempting.
At present, therefore, there are fundamental differences in the approach to the fee in the banking market. Česká spořitelna, which is the largest bank in the country with the number of clients, has decided to join Komerční banka and UniCredit bank, which demand higher fees from clients.
“As a savings bank, we required clients to pay only CZK 700 for administrative costs in early repayment; however, due to the serious effects of the CNB’s recommendation not to charge for purposefully incurred costs, we decided to start reimbursing clients requesting early mortgage repayment. at least for part of the costs we incur with financing each mortgage loan, “Filip Hrubý, a spokesman for the savings bank, told Aktuálně.cz.
According to him, every client who wants to repay their mortgage early will find a calculator on the savings bank’s website, where they will see exactly the amount of their payment. According to a source of Aktuálně.cz acquainted with the situation on the banking market, the savings bank will charge a fee of approximately 2% of the total amount of the housing loan.
Filip Hrubý points out that non-payment of the bank for the costs actually incurred by the bank to finance mortgage loans substantially increases the financial risks for clients and endangers the stability of the banking system.
“If banks continue to be unable to pay for cost effectively in the event of early mortgage repayment, banks will stop offering long-term fixations and most new mortgages will have an interest rate fixed for one or two years only. rates by the central bank, which is likely in two or more years’ time, will cost their mortgage loans twice as much for hundreds of thousands of clients overnight, and many of them will be unable to repay, “the spokesman warns.
According to him, the second serious risk is the fact that this accumulates financial losses on the part of banks, which weakens their capital adequacy, which is a precondition for banks to continue lending to companies affected by the crisis and allow deferrals. work and income.
Higher costs for banks will be reflected in higher mortgage prices
Many other banks, which now demand only hundreds of crowns or even nothing from clients for refinancing or switching to another bank, are calling for a change.
“If the bank is not entitled to choose the loss that will arise from early repayment, it will charge this flat rate to all clients at an interest rate. Logically, all clients will have more expensive mortgages and those who do not repay early will pay for it. which the CNB prefers is not entirely fair, “says Milan Voldřich, Raiffeisenbank’s director of mortgage loans.
According to Vladimír Komjati from Airbank banka, in addition to the actual settlement of the mortgage, it must also secure its long-term financing against risks. “And if the client repays the mortgage early, the bank will not be covered by these already incurred costs. If they are not covered by the client, who repays his mortgage early, it could be reflected in the higher price of mortgages over time. In the long run, these uncovered costs must be reflected somewhere, “says Komjati.
Martin Podolák, Director of the Credit Products Division of mBank, explains that most banks borrow money on their clients’ mortgages or invest part of their deposits in comparison with the loan. If a loan fixed for a certain period is repaid early, the bank then bears the cost of the ‘price of money’ it has invested in the loan until the end of the agreed fixation. Alternatively, the cost of untying and acquiring a new investment.
“From the customer’s point of view, this topic is very sensitive. We are definitely in favor of clear regulation and setting of rules for charging this fee so that everyone knows what it means for them if they want to pay, and so that there are no fluctuations and billing. extremely high amounts, as was the case in some cases, “says Martin Podolák.
He adds that if clients’ behavior changes so much that there is much more frequent fluctuations, the costs can become very crucial for the bank and they will have to cover them with something. “Increasing rates is one of the options. From my point of view, in this variant, the costs would be passed on from individuals who do not comply with the contractual relationship to all clients, even those who comply with the contractual relationship,” adds Podolák.
The CNB does not intend to change its position
The Consumer Credit Act stipulates that the lender is entitled to reimbursement of costs incurred in connection with early repayment, but has severely limited the amount of such reimbursement. For example, clients have the opportunity to repay 25% of the loan amount free of charge within one month before the anniversary of concluding the contract.
“A client who wishes to make the most of this option is therefore able to repay the loan in full within four years without the lender being entitled to any early repayment compensation. A consumer housing loan may be repaid without compensation even if the borrower: or his spouse or partner dies, becomes disabled or is ill for a long time, “the Czech Banking Association explains in its statement.
The law also addresses the situation where the property financed by the loan will be sold. If the loan agreement lasts longer than two years, the loan provider is entitled to compensation, but this compensation may be a maximum of 1% of the early repayment, but a maximum of CZK 50,000.
The law lists three other situations in which the client does not pay any compensation for early repayment of the loan. These are cases where the early repayment was made within the scope of insurance benefits intended to ensure the repayment of a consumer loan, in the case of a consumer loan provided in the form of an overdraft facility and finally in a period for which no fixed lending interest rate is set.
“In other cases where the client decides to repay early, the law provided for the possibility for the lender to claim some compensation – the so-called reimbursement of reasonable costs. However, the law remained vague on this point and did not provide a clear guide to what can be costly This opened up space for various interpretations and thus established a debate as to which interpretation is correct and which solution is fair both from the point of view of the borrower and from the point of view of the lender, “explains the reason for the current dispute by the Czech Banking Association.
According to her, banks do not want to make money on the borrower with early repayment. They only want to compensate for the difference that results from the interest rate on the prepaid loan agreement and from the interest rate at which the bank is able to re-place these funds on the market.
However, the Czech National Bank is convinced that it interprets the law correctly and, according to the statement for Aktuálně.cz, it cannot arbitrarily “soften” its position.
“In its opinion from last year, the Central Bank responded mainly to suggestions or questions from the lay and professional public, including questions from credit providers and intermediaries. If some financial market entities do not follow the CNB’s opinion, the bank may proceed in a supervisory manner in a manner permitted by law, including the possibility of imposing remedial measures or imposing a fine for committing an offense, “said CNB spokeswoman Petra Vodstrčilová.
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