I earned 45,000 CZK/hr (€1,850 or £1,650) by renegotiating our 
We purchased the building in 2007 and then divided it into separate living units.
Czech Mortgage Refinancing Quandaries – You Are Not Alone!
What a shock we received in year 2 when the interest rate jumped to 5.58%, increasing our mortgage payments to 31,500 CZK.
In the subsequent years we managed to get the flats legally divided, re-evaluated and then the liens lifted off all of the flats except for two. This lowered the actual LTV based on the new valuations to 71%.
You would think this would mean a greatly reduced risk assessment by the bank and subsequently better mortgage rates. Well, think again.
Even with the base mortgage rate moving lower the banks in Czech Republic continue to keep their lending rates at the same level or at a higher level than before. Especially with foreigners and any who were getting or had mortgages for investment properties they kept the rates very high.
Our Czech Bank’s Mortgage Offer – 2011
This spring, with the news everywhere that mortgage rates were heading down, I waited eagerly for our yearly mortgage renewal offer, hoping for a much better rate.
My wife and I have a lot of mortgage debt (we own or co-own 39 residential or commercial rental units) much of which is attached to the base rate (or floating interest rates) so I am keen to lock down some of them for a longer period to mitigate our inflation risks. Our Czech property was one we had earmarked for locking down.
Overall the base rate has decreased by 1.75% but our Czech mortgage rate has actually increased by 1.59%!
If there is one thing I can’t stand and am very vocal about, it is the blatant greed of the major Czech banks and this was just another example, in my mind.
At this point came one hour of my four hours spent on this renegotiation as I ranted to my wife about the greed of Czech banks. She is an expert on the subject even though I manage all our banking.
The good thing is that our company has a mortgage advisor in-house who is experienced in handling mortgages for foreigners. I immediately spoke with him to get an idea if we could move our mortgage elsewhere.
Unfortunately for us and many other foreigners, there is a strong barrier to changing mortgage providers because:
1. There are not many mortgage providers now who will lend to foreign investors.
2. Any who do lend require personal presence at least one time in the process, really a pain for us, with investors living in Canada and probably for our readers also.
3. The longest mortgage now offered for an investment property is 20 years, compared to the 30 years previously possible.
Renegotiating our Czech Mortgage – Lessons
After determining that the mortgage offer we had received was very high, in fact, extremely high based on the LTV and good repayment history, I set about trying to renegotiate the mortgage or change mortgage providers.
First, our mortgage broker sent out our basic finance details to those banks who would possibly give us a mortgage to see what offers we would receive.
Second, I wrote a polite but very strong email to our current Czech mortgage bank stating the reasons we considered the offer poor, why we were good clients for them (LTV was now low and we were always on time with our payments) and that we were in the process of getting offers from other banks. In my email I plainly stated that we thought a mortgage offer 1% less would be in line with other current offers.
Imagine my surprise when I received a phone call the next day from someone at the bank saying that they could offer me a reduction of .8%. After a few more days of negotiations we settled at a 1% discount for the 5 year fixed.
The 1% difference worked out to 3,000 CZK (approx. €125 or £110) a month of interest which we will save by not accepting their first offer. Over a 5 year period this saves us 180,000 CZK (approx. €7,400 or £6,600).
I estimate I spent a total of four hours on the renegotiation. One hour ranting to my wife after receiving the first offer. One hour spent with our mortgage broker talking about alternatives and two hours negotiating with our current bank.
This works out to payment of the 45,000 CZK per hour (€1,850 or £1,650) mentioned at the start!
What lessons did this experience reinforce in my mind and I want to emphasize to all investors who currently have mortgages in the Czech Republic?
1. Acknowledge that the bank’s first offer is often trying to see what they can achieve.
Most clients just renew at the first offered rates and the banks know and misuse this. They are in no way interested in the success of your investment or that you achieve the goals you set out with your property. They are only interested in returning profits for their shareholders. Period.
2. Determine if it is worth your time.
Calculate the difference it would make to negotiate a, for example, 0.5% discount over your fixation period and how much time it would take to get this discount. Perhaps if you plan to fix for just one year more and then sell it might not be worth spending the time on it. In most cases the effort is very well paid!
2. Be informed of your options.
Well in advance of the deadline to renew your fixation period be informed about your mortgage options and the current offers from competitive banks (we offer a free refinancing service so please contact us immediately if you would like to take advantage of this).
3. Start negotiations immediately if your current provider’s offer is poor.
If your current mortgage provider’s offer is not in line with competitors, inform them plainly with the following details:
a. that you are looking at alternatives (best is if you can inform them of potential competitive offers with specifics)
b. why you are a good client for them (repayments on time, property holding value, etc.)
c. what you would consider as a good offer prompting you to stop pursuing other offers
Be realistic but determine that you would follow through in changing mortgage providers if they don’t reduce the rate by a certain amount.
4. Offer your current bank an acceptable rate whereupon you would stop looking at competitors
If the bank starts negotiations and make a counter offer, let them know that you appreciate the offer. If it is still not in line with other offers, again inform them but say that you would stop pursuing other mortgage offers if they were to give you a rate of ….%.
I sincerely hope these steps will help you as it helped us, to get the best possible offer for your Czech mortgage! You will most likely be extremely well paid for the time you spend on it.
Updated/Aktualizováno: November 27, 2014,
Thanks for this post, Nathan. This is extremely useful information. We don’t as yet have a mortgage with a Czech bank, but I will feel far more comfortable using this information if and when we do, to get a better deal!
Glad you found it useful Sam!
Nathan, I am not surprised (although I have no experience with mortgages in Czechia).
When I compare the fees the banks charge in Czechia and those in Austria, it’s simply a rip off! So whz should mortgages be different!?
What’s funny is that Czechia is in EU and all the fees smell of cartel agreement between the major banks – yet nothing happens!
It’s like in US – banks succeeded in the last twenty years to get an exclusive position in the economy. And they (mis)use it very well!
Hi Petr,
It seems that the CNB lowering interest rates only benefited profits at the banks since they passed little of this on to the consumer. I am surprised they (CNB) never forced the banks to follow their rate moves so it had the effect they intended of stimulating the economy rather than just enriching these corporations.
The only positive thing is that the banks are very stable and CR didn’t need a bailout. But I would think there would be some happy medium.
Nathan