New mortgage loan conditions valid from 1 September 2024

New rules for early repayment will apply to mortgage contracts signed from September 1, 2024. What will the new conditions be? How much will banks be able to charge and how will it be in practice?

The long-awaited amendment to the Consumer Credit Act will come into effect on September 1, 2024. Until now, bank clients could repay or refinance their loan, most often for only a symbolic fee of CZK 700 or CZK 1,000. The reason was that the Czech National Bank ("CNB") stated in its earlier statement that banks are not entitled to charge higher fees in case of early repayments. Some large banks felt this opinion in the form of hefty fines from the CNB for charging these fees in recent years. To put it simply, the banks subsequently preferred to backtrack and not charge any more fees than to break their relationship with the CNB and have an audit and control from the CNB more often than absolutely necessary.

New conditions from 1 September 2024

Now banks will be able to charge fees for early repayment of the mortgage, extraordinary repayments (above the limit of 25% per year of the loan amount, which clients are guaranteed by law for free at the time of the anniversary of the contract) or when refinancing the loan, and all this outside the period of the end of the interest rate fixation:

• 0.25% of the amount of the early repayment for each year started until the end of the fixation, but max 1% of the early repayment

The overall conditions for calculation and when banks are/are not eligible are a bit more complex, but we will not cover that in this article. If necessary, we will be happy to explain the details to you in person or by phone as part of a consultation with our mortgage specialists.

Example:

If you have an agreed interest rate of 5.49% for a mortgage loan with a balance of CZK 3,000,000 and you have exactly one year left until the end of the fixation and you decide to pay off the entire loan or refinance it to another bank, then the bank is entitled to charge 0.25% of the extraordinary installment, i.e. of the amount of CZK 3,000,000. In this case, the maximum possible amount of costs and fees would be CZK 7,500.

If we had the same example, but the client had, say, a 5-year fixation and there were 4 years left until the end of the fixation, then the bank would be allowed to charge a maximum of 1%, i.e. CZK 30,000. 

The new conditions will apply both to newly signed mortgage contracts after September 1, 2024, as well as to contracts with newly negotiated interest rate fixation. So if your fixation ends on, for example, March 31, 2025, the new conditions will not apply to you until then, and you can still repay the mortgage loan early without penalties or fees. After the validity of the new fixation from April 1, 2025 (in this case), then the new conditions will apply to you.

When is it still worthwhile to change the bank or pay off earlier?

The most questions arise in this regard: "When is it worth it to me to refinance the loan and pay a fine to the bank in the event of an expected future drop in interest rates?". This is certainly very individual and we will be happy to discuss it with you directly in your specific case. If you have any questions in this regard, please contact us by email at: info@mortgagespecialist.cz