By law you have 14 days to think it over before signing the mortgage agreement. Once the bank hands you its draft terms, it may not change or withdraw them for two weeks, unless something new comes to light about your creditworthiness. If you accept the draft within that period, the bank has to sign the agreement with you (§ 111 of the Consumer Credit Act).
After signing, the position is reversed. For a housing loan the law gives you no right to walk away without a reason, so the only time to check is before you sign. Use it on the ten places in the agreement that decide the money, and get the bank's answers in writing.
From draft to signature, day by day
- Day 0: the bank hands over the draft agreement and the pre-contract information on the ESIS form (European Standardised Information Sheet). Note the date; the 14 days run from it.
- Days 1–5: compare the ESIS with the offer you were given earlier: the rate, APRC (RPSN), payment, fees and conditions for discounts. Ask for an explanation of every difference.
- Days 5–10: send the bank the draft purchase agreement and escrow agreement so that they match the drawdown conditions. What a purchase agreement should look like is covered in Purchase agreement and escrow. Arrange property insurance in a form that can be assigned to the bank (vinkulace).
- Days 10–14: settle the last points and agree a date for signing. Signatures on the pledge agreement usually have to be officially certified for the land registry, so ask whether the bank can arrange this at the branch.
- Signing: the loan agreement, the pledge agreement and the application to register the lien. Drawdown follows, as described in Drawing down a mortgage.
You do not have to use the whole period. If the purchase agreement deadline is pressing, you can accept the draft sooner.
What should you check in a Czech mortgage agreement?
Ten places decide the money:
| What | Where to find it | What to ask |
|---|---|---|
| Rate and length of the fixed period | loan agreement, ESIS | does the rate apply from the day of signing or the day of drawdown? |
| Conditions for the rate discount | agreement, price list | how much does the rate rise if I stop meeting a condition, and from when? |
| APRC and fees | ESIS | does the APRC include every product I am required to have? |
| Drawdown conditions and deadline | clause on drawdown | can I meet them within the purchase agreement's deadlines? |
| Undrawn part of the loan | price list, agreement | do I pay a fee if I do not draw the whole loan? |
| Extra repayments | agreement, general terms | only the statutory minimum of 25 % a year around the anniversary, or more? |
| Insurance | agreement | must I have it with the bank, or only assigned in its favour? |
| End of the fixed period | agreement, general terms | how will the bank tell me the new rate (at least 3 months in advance)? |
| Calling in the loan and penalties | general terms | for what can the bank demand the whole debt at once, and what are the contractual penalties? |
| Pledge agreement | a separate document | what exactly am I pledging, and is there a ban on selling or encumbering it? |
Ask for general clauses such as “the bank may call in the loan if your financial situation deteriorates” to be explained with concrete examples. What a lien and a ban on disposal actually mean is explained in A lien on a property.
What a lost discount costs you
How the numbers work out: a CZK 4,000,000 mortgage over 25 years, fixed for 5 years at 5.00 % after a discount of 0.5 pp for taking the bank's insurance and having your salary paid into an account with it. The payment is CZK 23,384.
- After two years you change employer and your salary starts going elsewhere. Under the agreement the bank raises the rate to 5.50 % until the end of the fixed period. On the remaining CZK 3,830,828 the new payment comes to CZK 24,490, which is CZK 1,106 more.
- Had the discount never applied, the payment would have been CZK 24,563. Over the five-year fixed period you would have paid CZK 98,447 more in interest: CZK 1,044,671 instead of CZK 946,224.
For every discount condition, check how often the bank reviews it, whether you get time to put things right, and whether the rate goes back down once you have. The calculation uses the annuity formula with the same rate for the whole fixed period.
What the bank may not ask of you
- A promissory note. The law forbids one as a means of repaying or securing a consumer loan (§ 112). The only exception is a housing loan that temporarily cannot be secured by a lien, and even then only a note that the bank returns once the lien is registered.
- Insurance with a particular insurer. If insurance is a condition of the loan, the bank may not restrict your choice of insurer (§ 115(2)). It may, however, tie a rate discount to its own product. Whether a discount for life insurance pays off is worked out in Life insurance for a mortgage.
- Security over property in any form other than a lien, for example by transferring ownership to the bank. Such an arrangement is disregarded (§ 113(2)).
- Signing without assessing your creditworthiness. The bank has to check it, or it risks the agreement being invalid.
Can you withdraw from a mortgage agreement after signing?
No. The 14-day right to withdraw after signing applies only to consumer loans other than housing loans (§ 118); with a mortgage, your 14 days to think it over come before you sign (§ 111). Once signed, the agreement cannot be changed by you alone. What remains are your statutory rights under § 117: once a year a free extra repayment of up to 25 % of the original loan amount, if you send it in the month before the contract anniversary, and free repayment at the end of the fixed period and when you sell the property, provided at least 24 months have passed since the loan agreement was signed. Outside these windows the bank may charge no more than 0.25 % of the amount repaid for each started year until the end of the fixed period, and at most 1 % in total.
Keep copies of every signed document together with the ESIS. You will need them at refixation, when refinancing and for the interest deduction on your tax return.
Sources
- Act No. 257/2016 Coll., on consumer credit, § 111 (reflection period), § 112 (ban on promissory notes), § 113 (security), § 115 (insurance), § 117 (early repayment), § 118 (withdrawal only for loans other than housing loans)
- ČNB – Act No. 257/2016 Coll., on consumer credit (text of the Act)
- ČNB – consumer protection on the financial market