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Mortgage – Frequently Asked Questions and Answers, Part 1.

Mortgage is still a very inflected term. Most people do not have sufficient funds to buy a home outright, so they often take out a mortgage loan for this purpose. For this reason too, there are many questions surrounding mortgages. We have prepared a series of articles to answer these questions. In part one, we look at how to sell a mortgaged property, how a renovation mortgage works, and whether and why you need property insurance to get a mortgage.

9 minutes of reading

Chapters of the article

Read also the second and third parts of this series.

In the second part, you will learn about non-bank mortgage options and why they are or are not worthwhile. You will also find a description of how a mortgage works for 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, you can then look at how early repayment of a mortgage works.

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

How to sell a mortgaged property?

There are several situations when you need to sell a mortgaged house. For example, you can’t keep up with the payments, you are getting divorced and don’t want to continue making payments together, or you may have found a new home and want to sell the old one. It is also often the case that people need to sell their small home with a mortgage so that they can buy a house instead. So what is the procedure for selling a flat, house or land with a mortgage?

Tip: If necessary, we will guide you through the divorce process, from negotiating with your spouse to filing for divorce to the judgment. We negotiate with due tact, but also with the necessary firmness to achieve the best possible outcome for you, your property and your children.

Pay off the mortgage

The first way to resolve this situation is to pay off your mortgage early. You can either do this from your own savings or take out a new loan to pay off the mortgage. This way, you sell the property unencumbered by the mortgage. However, this method is not always available to everyone.

Tip: If you can’t manage to pay your mortgage, one option is to refinance. This can be applied for as soon as your fixation period is over. If refinancing would not result in lower payments and lower overall interest, you can try to transfer your mortgage to another bank where you can get better terms.

Sell the property even with a mortgage

Another option is to sell the property including the mortgage. However, the main obstacle to this is that you have to find a buyer who is willing to buy the property with the mortgage, and the bank you have the mortgage with must also approve it. Should the bank not approve the buyer, there is still the option of refinancing the mortgage and transferring it to another bank that will approve the buyer.

Another option is to find a buyer who has enough equity to buy the property and also pay off your mortgage. Alternatively, they can take out a mortgage to pay off your mortgage. However, this is where a problem can arise in the form of penalties for early repayment of the mortgage loan. However, it is only possible to get penalties if you have a fixation on your mortgage, not after it ends.

Tip: If you’re buying or selling a property, it’s a good idea to use an escrow service. You can be sure that your money is safe and secure. If you want to set up an escrow, contact our attorneys.

Transfer your mortgage to another property

Last but not least, there is also the option of transferring your mortgage to another property, but this is quite a difficult and lengthy process. In practice, it works by transferring the mortgage from your current property to a new property. You can then sell your current property without the mortgage being encumbered.

The main criterion when transferring the mortgage to a new property is that your new property (i.e. the property that the bank will now have a mortgage on) must be of a high enough value. If it is not of sufficient value, you can guarantee another property (e.g. your parents’ flat).

If you decide to transfer your mortgage to another property, you will face the same processing as for your original property. You will need to get an appraisal of the value of your new property, apply for a mortgage to be registered at the Land Registry and insure the property. The bad news for you is that there is a charge for this, and you may not even avoid the bank’s fees for transferring the mortgage. The whole process is also quite time consuming due to the involvement of the Land Registry.

Can I take out a mortgage to renovate my house?

Have you inherited an older house from your parents or does your current house or the house you are about to buy need major repairs but you don’t have the necessary savings for renovation? That’s okay, there is a mortgage option for renovating your house.

A renovation mortgage is not much different from a conventional mortgage on a property. In the case of a renovation mortgage, you also guarantee the property – either the one you are going to renovate or another property (e.g. if the value of the renovated property is not sufficient). But what is different about a home renovation mortgage is the way it is taken out. Specifically, there are two ways:

  1. Drawing down the whole amount at once based on an expert’s estimate – this often requires an itemised budget and a construction schedule.
  2. Drawing down the amount in instalments with invoices for the work done.

Tip: If you hire a professional, it pays to sign a contract for work. We will make sure that the creation and delivery of the work is legally free of any ambiguities, unreasonable risks and hidden pitfalls. We will prepare a bulletproof contract for you in as little as 3 days.

You will also be interested to know how budget increases and extensions work in the case of a renovation mortgage with a clear price. You don’t have to worry about getting into trouble. It is a normal thing to be reckoned with. You can draw a higher amount than the estimated amount and, equally usually, a lower amount if the renovation works out cheaper. In addition, there is usually a non-purpose part of a home renovation mortgage. You can use the money for anything (such as buying a pool, furniture or electronics).

Tip: If you are planning to renovate your house, you should not miss the subsidy programme Repair your grandmother’s house from New Green Savings. Thanks to this programme, you can get subsidies for insulation, photovoltaics, heat source replacement, water heating or a car charging point, up to 50% of eligible costs.

Real Estate Purchase or Sale

We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.

Do I have to have property insurance if I take out a mortgage?

Simply put, yes. Property insurance is part of the conditions for getting a mortgage. Property insurance covers damage to the building and structural components of the property (such as radiators or solar panels). The reason the bank requires property insurance for a mortgage is that it protects the bank from potential loss. This is because the bank has a mortgage on your house while the mortgage is being repaid, and if anything happens to it, it will lose some or all of the value of the mortgage. In the event of a loss, the insurance company will then pay the insurance premium to the bank and it will transfer it to you. You must then use it to repair the damage.

Tip: Read our article on apartment and condominium insurance.

How to choose property insurance

Property insurance is most often determined by the bank itself, but if you’re arranging your own property insurance, these tips will come in handy:

  1. Make your needs clear: Determine the type and value of your property, identify potential risks and vulnerabilities specific to the location and type of your property (for example, if your house is in a flood zone, it’s worth insuring against this event).
  2. Do your research: do careful research into what the insurance market has to offer. The main factor determining the quality of insurance is the amount of the sum insured – that is, what the insurance company will pay you in the event of a loss. Also make sure that the insurance covers all claims that potentially affect you.
  3. Set a budget for your premiums: consider how much you can afford to invest in property insurance,
  4. Take advantage of discounts and packages: ask about discounts for combining multiple policies (e.g. car and home insurance).
  5. Ask for professional advice on insurance policies for multiple policies: Consider consulting with an insurance agent or broker to get personalized advice.

Tip: Do you need help with choosing insurance, financing a property or any other issue 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.

When you are considering whether to take out a mortgage, remember that you need to inform yourself properly first. This is because careful planning, financial foresight and a thorough understanding of the options available will enable you to navigate the complex property landscape and secure the best possible deal.

Read also the second and third parts of this series.

In the second part, you will learn about non-bank mortgage options and why they are or are not worthwhile. You will also find a description of how a mortgage works for 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, you can then look at how early repayment of a mortgage works.

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

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Real Estate Purchase or Sale

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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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