Mortgage – Frequently Asked Questions and Answers, Part 2.

Here is the second part of our series on the most common mortgage questions. In this part, we look at non-bank mortgage options and why they are or are not worthwhile. We also bring you a description of how a mortgage works on a foreclosed property you acquired at auction. You will also find out if it is possible to take out a mortgage on a commercial property, and what the possible alternatives are. Finally, we’ll then look at how early repayment of a mortgage works.

10 minutes of reading

Chapters of the article

Read also the first and third parts of this series.

In part one, you’ll learn how to sell a mortgaged property, how a renovation mortgage works, and whether and why you need property insurance to get a mortgage.

The third part looks at the possibility of buying a house on hire purchase without a mortgage. You will also learn what conditions you need to meet to get a mortgage for a property. We will also answer questions about the condominium mortgage and the possibility of a mortgage without a mortgage on the property or with a mortgage on another property.

Is there a non-bank mortgage for buying a property?

Yes, you can indeed take out a non-bank mortgage. It is offered by non-banking companies and is not special-purpose (so you can use it for anything and you don’t have to prove the purpose of the money), but just like a conventional mortgage, with a non-banking mortgage you pledge the property.

The advantage of a non-bank mortgage is that it has much less strict conditions than a conventional bank mortgage. Often you may not have sufficient income, you may be in foreclosure or have a record in the debtors’ register. Another advantage is the speed of setting up – you can get a non-bank mortgage in just a few days after applying.

Tip: Read our article to find out how to buy a mortgage-financed home.

However, there is a big BUT. Non-bank mortgages can be offered by fraudulent companies with non-transparent terms. Often the interest and penalties for default are also much higher than with banks. Non-bank companies will also give you a lower loan relative to the value of the property (up to 90% of the appraised value of the property for a conventional mortgage, whereas the level for a non-bank mortgage is between 50% and 70%). A non-bank mortgage also carries the risk of refinancing and hidden fees.

Tip: We strongly recommend you consult a professional before signing any contract. This is because these contracts can be written in a very clever and roundabout way, so you won’t even notice hidden fees and penalties. With our services, you can complete your contract review quickly and from the comfort of your home.

How does a mortgage on a property in insolvency or foreclosure work?

Properties that are in foreclosure are often offered at auction at better prices than properties on the conventional real estate market. These auctions must be published on the Auction Portal, which is operated by the Chamber of Executors of the Czech Republic.

The price of the property is estimated by a court expert and the starting price at the auction is determined on the basis of this price. It corresponds to 2/3 of the estimated price and if the property is not sold in the first round of the auction, the starting price is reduced. Basic information about the auctioned property must be published. This includes the time and place of the auction, the object of the auction and accessories, the starting price, the lowest possible bid and other conditions for participation in the auction. In order to take part in the auction, you must pay an auction security, which will be returned in full if the auction is unsuccessful. If you win the auction, you have a set period of time to pay the full amount.

Tip: Are you tempted by real estate auctions? Learn how to buy a cheap property at auction.

You can take out a conventional mortgage on the auctioned property, but it won’t be entirely straightforward. You can apply for one after you win the auction. You have about 20-30 days to apply for a mortgage before you have to pay the full price of the auctioned property. Another problem is the uncertainty of whether you will be able to get a mortgage and, if so, whether the amount will be enough to cover your bid. For these reasons, you may find a forward mortgage or a forward mortgage more advantageous.

Pre-mortgage and forward mortgage

A forward mortgage loan is not secured by the property. It is usually valid for one year and once it expires, you need to refinance it into a conventional mortgage secured by the property. A forward mortgage loan also usually has a maximum value (usually up to CZK 5 million). You can apply for a pre-mortgage loan after the property has been auctioned. You will need to submit a final order of attachment and the auction decree.

Tip: Whether you plan to buy a property conventionally or at auction, you can’t do without the help of an attorney. We will provide you with a complete contractual and legal service related to the purchase of real estate. We will handle it within 48 hours, flawlessly and professionally.

Another option mentioned is a forward mortgage or mortgage without a property. This involves arranging this type of loan with the bank before you have a clear idea of what kind of property you are going to buy with it. You usually have up to three years to do this and once you have chosen a property, this mortgage becomes a conventional mortgage up front. Beware though, should you not get the property by the specified time, you risk heavy fines.

Are you about to take out a mortgage?

Then our services will come in handy. We will provide you with a complete contractual and legal service related to the purchase of real estate. We can do it within 48 hours, flawlessly and professionally.

Can I take out a mortgage on a commercial property?

Are you setting up a business or have you expanded your business and therefore need your own premises but lack finance? Alternatively, have you looked at a beautiful house or flat but it is currently approved as non-residential space? There is a solution here.

Themortgage is for housing purposes and not for business purposes. You can still take it out for commercial premises under certain conditions. The first option is that only a portion of the property will be used for business purposes (specifically 49% or less) and the larger portion (51% or more) will be used as residential space. This option is thus suitable, for example, when buying a house connected to a workshop.

Tip: Need legal help in business? Don’t have time to look for a lawyer for your company every time? To arrange his time, to catch up with him and to solve the billing with him? Or do you even need to have an attorney available at all times? Contact our lawyer for business.

However, if you want to buy purely commercial premises, then you will not get a mortgage to finance it. However, there is a trade mortgage for these purposes. This is not so different from a conventional mortgage. Interest rates are usually similar to conventional mortgages, as are your minimum deposit and the repayment period. The terms and conditions under which you get the mortgage are also usually the same.

If you are in a situation where you have found your dream property, but it has been approved as a non-residential property, a conventional mortgage is the best solution. You can take this for the purchase of the non-residential space and the current redevelopment. However, there may be a problem with the bank’s willingness. Commercial premises are not worth as much as residential premises, so they may want to mortgage another property. You must also have the approval of the local building authority for the re-development.

How does early repayment of the mortgage work when I sell the property?

If you are going to sell a property with a mortgage, you may want to choose the early repayment option. This will make it easier to sell the property and will also make the whole process quicker and easier. Alternatively, you have raised a larger sum of money and want to use it to pay off the mortgage to get rid of the fees. So how does this early mortgage repayment work when selling a property?

How is it now

If you took out your mortgage after 1 December 2016, or if your mortgage was remortgaged after that time, you will not have to pay any early repayment penalties. The only thing you will have to pay are the purpose incurred costs, which are the costs of the administration you create for the bank with the early repayment of the mortgage. This includes the salary costs of the staff who process the early repayment of the mortgage, Land Registry fees, notary fees, postage, telephone charges and office costs (printing etc).

Tip: Whether you are selling or buying a property, you cannot avoid the Land Registry. We can help you with the drafting of the Land Registry application so that everything is in order the first time and you don’t miss important deadlines or lose money.

If you have an older mortgage or if the fixation has not been changed, the bank may charge you a penalty for early repayment. However, this penalty is legally set at a maximum of 1% of the outstanding part of the loan and must be stated in your contract. If you do not insist on repaying the full amount immediately, you can use the legal option to repay 25% of the total amount each year without penalty. Another option is to meet the reasons for free early repayment of the mortgage. These include, for example, a difficult life situation.

Tip: Do you need help with early mortgage repayment, property financing or any other problem related to your finances? Then contact our partner Corona Lecta. They will discuss your financial, property and life goals with you and design a thoughtful strategic plan to achieve your goals.

Amendment with effect from 2024

This year, the government approved a draft amendment to the Consumer Credit Act. This is intended to change the current conditions for early repayment of mortgages. In the event of early repayment of a mortgage, it will now be necessary to pay up to 2% of the principal amount repaid early. On the other hand, the list of reasons for early repayment of a mortgage free of charge will be extended. These will now include, for example, the sale of the mortgaged property or the divorce of the spouses for the purposes of the division of joint property.

Read also the first and third parts of this series.

In part one, you’ll learn how to sell a mortgaged property, how a renovation mortgage works, and whether and why you need property insurance to get a mortgage.

The third part looks at the possibility of buying a house on hire purchase without a mortgage. You will also learn what conditions you need to meet to get a mortgage for a property. We will also answer questions about the condominium mortgage and the possibility of a mortgage without a mortgage on the property or with a mortgage on another property.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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