How to avoid high Czech mortgage redemption penalties

How to avoid high Czech mortgage redemption penalties

At Sim Property we’ve done a lot of sales over the years for our clients throughout the Czech Republic, and are very used to solving the various issues that arise during the process.

One of the biggest (financial) barriers to selling a property in the Czech Republic is trying to avoid paying the very high redemption penalties (anywhere between 5% to 25% of the outstanding mortgage amount) charged by Czech banks when paying off the mortgage during the fixation period. On the re-fixation date you can pay off the mortgage with no penalty.

Many foreign investors assume that once their initial fixation period ends they are automatically put on the banks standard variable rate (which is common in the UK for example) and thus no redemption penalty will then apply, however, what actually happens is you have to choose from a selection of fixation periods (typically 1, 3 or 5 years) and if you don’t choose anything the bank will automatically re-fix the mortgage rate for the same period that has just ended.

We’ve managed to implement all of the following solutions for our clients:

1. Time the sale of the property to go through on the date the mortgage fixation period ends (this is by far the most common and usually means you need to have a buyer signed up around 2 months before this date).
   1. Straight sale on the mortgage re-fixation date
   2. Get the buyer to rent the property from you until the time the sale can go through on the re-fixation date
2. Negotiate with the bank (sometimes this is very difficult but can be done)
   1. Negotiate for a lower or zero redemption fee
   2. At the end of the next fixation period negotiate to be put on their variable rate mortgage without any redemption fees
3. Get the buyer to hand over your mortgage (usually just a very small fee is charged). This is often easier if you’ve got very attractive conditions on your mortgage.
4. Get the buyer to take a mortgage with the same bank as your mortgage (resulting in a large reduction in repayment fees, this is especially true if the buyers mortgage is at least the same amount as your mortgage)
5. Sell the property and transfer the mortgage to a different property that you own (eg if you own another one with no mortgage)
6. Raise cash to pay off the mortgage on the next re-fixation date with a view to selling the property soon afterwards
7. If you plan to sell the property in the near future (1-2 years) remortgage to a bank that has very low redemption penalties
8. If you plan to sell the property in the near future (1-2 years) ensure that the next fixation period you choose is just for 1 year, so you’re automatically closer to the re-fixation date
9. Rent the property to the buyer until the sale can go through on the mortgage redemption date.

Get in touch with us for more detailed advice on how to sell your Czech property.