Nowadays, a significant number of property purchases are paid for with a mortgage loan. In the first half of 2021 alone, banks arranged mortgages in a similar volume as in 2016 and 2017 for the whole year, when the total volume exceeded 225 billion (CZK). Unfortunately, however, not everyone thinks ahead and has a certain financial reserve. And then, when a situation similar to the covid one occurs, for example, the problem of repaying the mortgage might become a reality. And it is in such cases that problems must be solved, otherwise this imaginary snowball will start to roll up until it turns into an avalanche of unpleasantness from which the person concerned can no longer hide. So what is the ideal course of action in the event of a mortgage default?
Communicate with the bank
The worst thing a person can do is to play dead and assume that the bank will not notice unpaid repayments. Unfortunately, the truth is that there are many people like this among us. However, banks have automatic checking mechanisms, and if you forget to pay an instalment or are just late, the bank will immediately start dealing with it. And if you are the one who got into an unpleasant situation, you should definitely start paying attention to it as well. Because your efforts to solve the problem are a good signal to the bank, and they may try to accommodate you. Otherwise, it is very likely that you will reach a point where the bank will find it difficult to help you and will take you to court and you will lose your property. And in that case you will unnecessarily incur additional costs, which can be very high. That is why you need to take action immediately.
One solution may be another individual deferment of repayments. In this case, you will pay only the interest on the loan for some time without the annuity payment, and sometimes the bank will even allow you to defer the entire repayment. This is most often for 3 to 6 months, in exceptional cases for up to one year. It depends on the bank.
However, you cannot rely on such concessions and it is certainly not a solution that the bank will automatically approve. It is an extreme scenario. You can also discuss with the bank restructuring the entire loan.
However, the bank may turn its back on your problems and simply sell your debt to another entity.
Similar solutions will result in you having a record on the debtors’ register, making it difficult or impossible for you to take out further loans in the future. Therefore, for any solution proposed by the bank, always ask what impact it will have on your creditworthiness.
This solution is the most feasible if you have an apartment. For other types of property, it may not always be the best solution. You can rent out part of the property, i.e. it would be a ‘shared accommodation’. However, if a flatmate is not the right solution for you, think about renting out your flat for a period of time and moving out yourself to a cheaper rental e.g. on the edge of town or out of town. It is possible that the rental income will cover the cost of your mortgage repayments. If you find a small apartment outside of Prague and commute to Prague for work, you can save a few thousand. Prague has excellent and convenient train connections to the Central Bohemia region and such a solution can be quite comfortable. However, renting has one big risk. If you rent the apartment to someone who damages it or, in a worse case, stops paying the rent, your mortgage repayment problem will get even worse. Evicting a non-paying tenant may not be so easy. So choose your tenants very well.
If you take a pay cut at work and get into trouble, another job may be the solution for a while. However, this should not be a long-term solution, otherwise you will become a slave to your mortgage. And let’s face it, you don’t live to pay your mortgage or spend your life working. If you have a family and you subscribe to this devil for the long term, you also run the risk of your family ties cooling. So always think more in the long term.
Selling the property
If none of the above options are an option, then think about selling the property. And sell the property before you get a dent in the likes of the bad debtor register. This is because an entry on the debtors’ register will make it impossible or difficult to take out a mortgage for several years to come.
Sometimes you just need to sell your current property, which you can’t afford, and buy a cheaper home instead, whose mortgage payments you can easily manage. However, this is why you must not be on the debtors’ register.
Sellers who are under financial and time pressure often make the wrong decisions. For example, they sell a property below the price to the first buyer who comes along, or they enter into an unfavourable purchase contract and then regret their decision. In such cases, a capable, experienced real estate agent will help you make the best possible decision. He or she can look at your problem from an unbiased perspective, knows the real estate market, can do professional marketing of the property and then sell it often for more than the originally requested amount. Thus, he will help you sell the property better and at the same time save you a lot of trouble.