Mortgage loan

What it means

A mortgage loan is a long-term loan for acquiring, building or altering real estate, secured by a charge over property in Slovakia. The charge is entered in the land register, and if the loan is not repaid the bank can sell the property.

The term is typically 5 to 30 years and the interest rate is lower than for unsecured loans thanks to the security. The rate is fixed for a period, a fixed-rate period, and afterwards follows the market. The total cost of the loan is shown by the APR.

Mortgages are primarily a housing product for individuals. Companies buying property generally use commercial investment loans secured on real estate, which work similarly but have different terms and do not fall under the rules for consumer housing loans.

How it works in practice

A sole trader or director applying for a mortgage has to prove their income. For entrepreneurs, banks work from the tax return and often from turnover or profit, so tax planning that reports a low tax base can backfire as lower creditworthiness for the mortgage.

If an entrepreneur also uses a mortgaged property for business, a proportionate part of the interest may be a deductible expense where the property is included in business assets or let. Young people buying their first home may claim the tax credit on interest paid under the statutory conditions.

As a fixed-rate period ends we compare bank offers and consider refinancing. Banks usually also require property insurance assigned in their favour and sometimes life insurance for the borrower.

What to watch out for

Once the fixed period ends, the mortgage instalment can rise sharply if the rate changes. When planning a household budget and the owner’s income from the company, allow a buffer for a higher instalment rather than assuming today’s rate for the full 30 years.

Extra repayments and early repayment during the fixed period may be subject to fees under the law and the contract, but generally not on the anniversary of the fixed period. Before signing it is worth knowing when and at what cost the loan can be repaid, for example on the sale of a company or the property.