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End of fixation and high rise in mortgages. How much will the installment and overpayment increase?

Some owners mortgage loans could literally meet an “interest shock”. Due to the combination of rising mortgage prices and the possible end of interest rate fixation, they could be multiplied. “Generally speaking, this applies to anyone who has not fixed a good interest rate since 2014 until about a month ago,” says Jan Bureš, Head of Product Mortgage at Srovnejto.cz.

Clients with three-year fixations from 2019 have rates approaching 3 percent per year. Rates will increase, but the change will not be as significant as for clients whose five-year fixations in 2017 end. Eim, Deputy Chairman of the Board of Cheetah Finance.

Whoever could have already secured the rate

Aggregate statistics on how many clients could be affected by this situation are not available. Of course, banks have their data, but finding out specific numbers is complicated by the fact that you can refinance / fix the rate several months before the end of a given fixed period. So who could, has already refinanced.

“The period when the share of refinanced mortgages accounted for up to a third of all new mortgages ended in the summer and has been steadily declining and approaching the standard limit of 10 to 15 percent for a long time,” says Filip Belant, head of the Housing Tribunal at Česká spořitelna. “We estimate that the refinancing ratio will decrease compared to other mortgage purposes,” confirms Radka Černá, Sberbank’s spokeswoman.

According to Belant, a large number of Česká spořitelna’s clients this year are their own mortgage they have already refinanced or managed to fix rates in advance before they rise sharply. “Next year, the fixation of mortgage loans to approximately 8 percent of clients will end,” says Filip Belant. In Sberbank, this will end the fixation period for about a fifth of all mortgages.

Mortgages: At the end of the year, interest rates could attack the 4 percent mark

Two scenarios at the end of the fixation

At the end of the fixation, clients have two basic scenarios: refinancing – going to another bank, and refixing – a new fixation at the same bank.

Refixation is simple. Basically, it is enough for a person to choose a new fixation. In addition, the bank does not further examine the client’s creditworthiness. “Of course, the problem would arise if the client was not able to pay the installments. There, family help may be necessary, but it is not a matter of joining a contract, but help within the family, if possible, ”notes David Eim.

Extending the maturity may be a partial solution if the installment is increased. “However, in such a case, it is a so-called restructuring, which involves an entry in the credit register,” points out David Eim.

The second category is refinancing, ie going to another bank. In essence, this is a new mortgage – albeit for a client with a proven repayment history – the new bank will therefore examine the income. “If it doesn’t work out in terms of income, the client stays with the existing bank,” adds Eim.

The view of the Golden Crown: It does not always pay to ask for a deferral of mortgage payments

The rise in rates has not ended

In addition, experts agree that rates will continue to rise. Therefore, those who have missed favorable rates should not remain lax. “However, due to the expected further rate increase, we still see the possibility of fixing the rate even now, if your fixation ends in the horizon of approximately 12-18 months, when we expect the rate to peak. After this period, we expect a gradual decline in rates to more favorable levels, “says Jan Bureš. Experts advise short annual fixations. After that, the customer can adjust his mortgage settings according to the current situation.

Example: The difference in overpayment is huge

For interest, let’s see how much the installments have changed (July 2021 x November 2021) in a situation where the client had a mortgage of 3 million crowns, with a fixation of 8 years and a maturity of 25 years.

  • In the summer, the five-year fixation was offered with an interest rate of 2.64 percent (APR 2.74 percent, installment 13,729 crowns).
  • In November, the client already borrowed for 3.64 percent (APR 3.78 percent, installment 15,331 crowns).

The difference in the monthly payment is about 1602 crowns. Assuming that the interest rate does not change for the entire duration of the credit relationship, in the first case the total amount paid by the client would be CZK 4,128,993, and the November rate would already be CZK 4,609,975. At a higher rate so the client will overpay 480,982 crowns more.

Source: ČS

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