Loan consolidation (konsolidace úvěrů)
Merging several debts (consumer loans, credit cards, an overdraft) into one new loan with a single payment. Through a mortgage, consolidation is done either with an American mortgage or as a non-purpose part of refinancing a home loan; the collateral is always property. The rate tends to be lower and the monthly payment falls sharply, but a longer term often increases the total interest paid.
Example
A household is repaying three loans totalling CZK 400,000; assume an average of 9 % over 5 years. That is CZK 8,303 a month and about CZK 98,200 in interest altogether. Moved into a mortgage at 5.00 % over 25 years, the payment drops to CZK 2,338, but the interest climbs to roughly CZK 301,500. Keep a 5-year term inside the mortgage and you pay CZK 7,548 a month and only about CZK 52,900 in interest.
In practice
Banks usually approve consolidation only if the old loans are paid off directly from the new mortgage and the credit cards are cancelled. Budget for a property valuation and CZK 2,000 to register the lien in the land registry. Interest on the non-purpose part cannot be deducted from your tax base. The classic trap is running the credit card up again after consolidating and ending up with twice the debt two years later.
How it differs
Refinancing moves one housing loan to a better rate, often at another bank. Consolidation combines several debts of different kinds into one. The American mortgage is the tool most often used for it: money for any purpose, but secured on property and at a higher rate than a purpose-bound mortgage.
Related terms
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