Mortgage Loans for Young People
If you are under 35 and your average gross income for the previous calendar year was lower than 1.3 times the average gross wage in the national economy, you may also apply for a state bonus for young people (SBY) to the mortgage loan. The bonus will reduce interest you pay to the bank by 3% for the first 5 years.
Frequently asked questions:
What income qualifies me?
The salary limit for the bonus is determined every 3 months and until 30 June 2017 it is set at € 1,287. From 1 July 2017, the limit will be € 120.90 less. So, if you wish to get the SBY, your average gross monthly income for the whole year 2016 has to be lower than € 1,166.10.
What documents do I need?
You don't need to ask for the bonus separately. You just apply for a mortgage loan at the bank in the usual way. The bank will include a SBY request into the application. Besides standard documents you need to attach a document proving your gross income to the application. It may be a tax return or annual tax prepayment reconciliation from the employer.
Can I use the mortgage loan for young people to purchase land?
The maximum amount to which the bonus for young people can be applied is € 50,000. If you need more funds, the amount in excess of € 50,000 will bear standard interest without a discount. You also need to keep in mind that the mortgage loan must be provided only for housing-related purposes, such as purchase, construction, reconstruction or maintenance of real property. Purchase of land or loan repayments as a purpose of the mortgage loan are not permitted.
Be careful with interest!
When the bank prepares a loan offer for you, check if it accepted your SBY request. Check also the repayment schedule. Depending on the selected bank, a difference in interest paid for five years can be as much as several thousand euros.
There are three methods of charging interest on loans with a state bonus. In all three cases, you will pay the bank the same monthly installment under the same conditions. However, the ratio of interest and principal – the amount that you repay to the bank, will be different:
1. The bank charges the full interest rate to the client and then refunds interest equaling the state bonus for young people and the bank’s contribution (currently 3%). This option is the least favorable one for the client, since interest accounts for the greater portion of installments and the loan balance is decreasing slowly.
2. The bank charges an interest rate reduced by the bank’s contribution (currently 1%) and refunds interest equaling the state bonus for young people. This option is more favorable. However, your interest rate will still not be 0.05% if the basic rate is 3.05%.
3. The bank applies a rate reduced for the bank’s contribution and state bonus for young people to the loan with each monthly installment. In this case the largest portion of an installment is used for principal repayment and interest paid by the client is minimal. This method is used, for example, by Tatra banka.
What will the new legislation bring?
If you plan to apply for a mortgage loan next year, you will probably no longer get the state bonus for young people in this form. The Ministry of Finance is preparing an amendment to Act No. 595/2003 Coll. on Income Tax and to the Act on Banks, which aims to abolish the state bonus for young people in its current form. If this proposed amendment is adopted, clients who qualify for the bonus will be able to claim the state bonus as a tax bonus in their tax returns. Instead of monthly savings on loan installments, they will be able to deduct 50% of the interest paid on a housing loan in the previous year from their tax liability in the tax returns, however capped at € 400.
Below we provide an example of a mortgage loan being repaid under the most favorable method of charging interest on a loan with the state bonus for young people:
- Mortgage: €50,000
- Interest rate: 0.05% p. a.
- Maturity period in months/number of installments: 360
- Monthly mortgage installment: €139.94
- One-off loan arrangement fee: €400
- One-off property valuation fee: €150
- One-off land register fee: €66
- Monthly premium on property insurance: €4.76
- APR: 2.35% p.a.
The total amount paid by the client is € 70,402.00, and the interest is calculated based on all months in the year having 30 days and a calendar year having 360 days.