Did you take out a mortgage in 2023, 2024, or 2025 and just accepted that you'll be paying 5% or even more for the next three years? If so, I've got something important to tell you. A fixed-rate period is definitely not a cage, and most people are paying unnecessarily high interest today simply because they don't know this.
It's one of the most common misconceptions I hear. A lot of people think that once your rate is fixed, you can't touch it for three, five, or even seven years. But the reality is completely different, and I'm going to show you why it's often possible to lower your rate even in the middle of a fixed period, without refinancing and with almost no costs.
This is something banks won't tell you on their own, yet it's one of the most important topics in today's mortgage market. And before I get into the details, let me tell you: usually, all it takes is a single email. Nothing more. It really is that simple these days.
Why Would a Bank Lower Your Rate? It's Cheaper for Them
But let's talk about why. After 2021 and 2022, when clients were leaving in droves for better deals with competitors, banks realized it costs less to keep a client than to lose one. Banks were losing a lot of money back then, and a lot has changed since. Today, many banks would rather lower the rate themselves as soon as a client hints at refinancing. It's simply cheaper and safer for them than risking you'll walk away.
The Penalty Myth: Why You Don't Have to Fear Early Repayment
Some of you might be thinking, "It can't be that easy," because if you actually refinanced, the bank would charge a penalty for early repayment. The thing about this penalty, which is officially called compensation for purposefully incurred costs, is that it's usually limited to an administrative fee, which is legally capped at 1000 CZK. So, nothing dramatic.
While the 2024 amendment to the law did introduce the option to charge for so-called lost interest, this tool is almost completely ineffective. And I'll explain why, because it's crucial for understanding why banks are behaving the way I've described.
What Is Lost Interest and Why It (Probably) Won't Affect You
Lost interest is the interest the bank loses when a client repays their loan early and doesn't complete the fixed-rate period. The calculation is precisely defined by law—it's calculated as the difference between the current market interest rate and the interest rate of the mortgage being repaid early.
- For example, if a client has a mortgage at 4.3% and the current market rate is 4.6%, the bank should be thanking them for returning cheaply borrowed money, allowing the bank to lend it out at a higher rate. The bank has definitely not incurred any loss, so it cannot charge any lost interest.
- If the mortgage were at 5% and the market rate were 4.6%, the bank would incur a loss of 0.4% on the prepaid amount for the remainder of the fixed period. According to the law, the bank would be entitled to charge the client for this loss.
However, the law caps the compensation at 0.25% for each year started until the end of the fixed period, with a maximum total of 1%. Which, again, is no big deal.
The Catch: The "Reference Rate"
And now, we just need to answer the question: what is this "current market interest rate," how is it determined, and where can you find it? The law introduces something called the reference interest rate, which the Czech National Bank announces every month on its website. If you wanted to find it, you'd have to go to the CNB website, into the ARAD section, and search through the published data.
Averages of lending interest rates for the purpose of compensation for costs of early repayment of a consumer credit for housing. Phew.
These rates are set for different fixed-period intervals, to ensure like is compared with like:
- up to 1 year, inclusive
- 1 to 3 years, inclusive
- 3 to 5 years, inclusive
- 5 to 10 years, inclusive
- more than 10 years
Each of these intervals has its own published reference rate, which your mortgage rate is measured against. And here's the catch. The reference rates are calculated as an average of rates on mortgages signed during a three-month period, with a delay. So we're in a situation where the current market interest rate is influenced by interest on mortgages that are now half a year old.
According to Hypomonitor data, for example, the average rate in June was 4.56%, but by October, it was only 4.48%. This means that for newly issued mortgages, it's very unlikely that the lost interest calculation would result in a number greater than zero. Therefore, the client faces no penalty.
At the same time, the market isn't just made up of average rates. A client with a brand-new mortgage can act relatively quickly to negotiate a lower rate. And so the cycle continues, as long as interest rates on the market keep falling.
The Initial Rate Doesn't Matter. The Bank's Willingness Does
And this brings us to the most important message. The initial rate when you get a mortgage isn't really the key parameter today. Whether you start at 4.6% or 4.4% might not be the deciding factor at all. What's much more important is how the bank will behave during the fixed period—whether it will be willing to react to falling rates and lower yours when it makes sense.
There are huge differences between banks in this regard. There are banks that react quickly and reasonably, and then there are banks where you get the feeling that any change has to go through five departments and two approval committees. Elsewhere, the attitude is simply "we won't lower it because we won't." And I would never recommend such banks to my clients, even if they seem very attractive at the start.
A Little Legal Quirk That Works in Your Favor
Let me tell you one more interesting thing that's almost never talked about, but is extremely important in practice and, frankly, a bit paradoxical. Some banks will lower the rate even for clients whose original rate is above the reference rate. Legally, there would theoretically be grounds to calculate some lost interest. But these accommodating banks just don't bother with it. They lower the rate anyway.
And that causes one thing to happen: the new, lower rate drops below the reference value, and the basis for calculating any lost interest simply disappears. From a legal standpoint, there's suddenly no loss, which means that if the client later decides to refinance with another bank or make an extra payment, they can leave without any penalty.
There's Nothing to Wait For
In conclusion, it's worth saying that we now have a wealth of experience, and it's pretty clear how each bank behaves. It's easy for an experienced advisor to navigate the market and recommend a suitable bank to a client. Personally, I have some banks squarely on my blacklist, while with others, I have no worries.
Perhaps there isn't much potential for further rate drops in the foreseeable future, but in my opinion, it's better to have the option to react if they do. Three years, the most common fixed period, is a long time. It's good to know you can negotiate your rate.
I know it's a complicated issue, but for anyone considering a mortgage these days, it's one of the most important topics. The key takeaway is that it doesn't make sense to wait for rates to drop before buying a property. On the contrary, anyone who knows what I've described can go ahead and buy now, and deal with the rate later.
