Can the interest rate on the current mortgage increase with the growth of the key one? In what cases can the rate be increased under the preferential program? Read the answers to these and other questions in our material
In most cases, the mortgage rate is fixed for the entire duration of the loan. But there are situations when the rate may rise. Together with experts, we understand in which cases this is possible.
General rules
According to the current legislation, the bank cannot unilaterally change the rate under the concluded mortgage agreement, as well as shorten the loan term or change the payment procedure. This is spelled out in Article 29 of Federal Law No. 395-1 “On Banks and Banking Activities,” says Anastasia Eliseeva, partner at the law firm Mokrov and Partners.
Therefore, most contracts are concluded with a fixed interest rate, and, for example, with an increase in the key rate, the conditions for an already taken mortgage do not change. However, there are exceptions here. Such cases are usually prescribed in the loan agreement itself or may be specified in other legislative acts (for example, on concessional lending).
“Mortgage agreements are often complex. For example, there may be an additional reduction in the rate at the conclusion of life insurance, property insurance, discounts to an employee of the bank itself. But if at some point the borrower stops fulfilling the terms of the agreement, the bank has the right to review the terms of his mortgage, removing all discounts,” explained Mikhail Lavrukhin, head of the commercial and residential real estate practice at the law firm Intercession.
Let’s look at some such situations. It is worth noting that before raising the rate, the bank will have to notify the borrower about this.
Market programs
1. Insurance waiver
The interest on the mortgage loan may increase if the borrower refuses to pay for insurance. For example, the bank’s base mortgage rate is 20% per annum, but with annual life insurance it decreases by 1 percentage point. “If later the borrower refuses insurance, then his rate will be the base 20%,” Mikhail Lavrukhin noted.
The amount of the rate in this case must also be prescribed in the mortgage agreement and brought to the attention of the consumer when signing the contract, otherwise there is a risk of invalidation of this condition of the agreement, Anastasia Eliseeva clarified.
2. No longer a salary client
A possible reason for the increase in the mortgage rate may be the termination of the salary project, thanks to which the borrower received a lower interest rate on a mortgage loan, added Regina Dydalina, executive director of the federal company “Floors”.
Almost all banks today offer such an option — a reduced rate for a salary client. For example, a borrower receives a salary from a certain bank and has issued a mortgage there. But he later quits. In this case, its rate can be increased by the discount amount (as a rule, 1-2 percentage points). But this condition must be spelled out in the loan agreement, the expert pointed out.
3. Floating rate
The interest rate on a valid mortgage may increase if a floating rate appears in the contract. “In this case, the bank may raise the rate based on the change in the Central Bank’s rate. It should also be fixed in the contract, to what extent the bank can change the terms of the loan,” explained the lawyer of Intercession.
However, against the background of the growth of the key interest rate in recent years, such loans are very rare, experts say. In addition, restrictions on mortgages with floating rates have been introduced since September 1. Now only those who request amounts from 15 million rubles from banks will be able to count on such loans. “That is, the regulator deliberately limited the circle of people to citizens with high incomes who can take on such risks,” Mikhail Lavrukhin noted.
What is a floating loan rate?
Unlike conventional loans, when the rate is fixed for the entire period of the agreement, the interest on a floating-rate loan is dynamic. They depend on external conditions, the essence of which is prescribed in the loan agreement. The variable rate is now linked to the key rate of the Bank of Russia, and the bank rate is added to it, which is 3.50% per annum. It is beneficial for the borrower when the key rate falls, and for the bank when it increases.
4. The end of the grace period
The mortgage rate may increase if the deadlines for registration of collateral or registration of a house with construction loans are not met. “Even if it was the fault of the contractor-developer,” said Regina Dydalina.
The rate also increases at the end of the mortgage grace period. For example, now there are offers on the market from developers and banks, when a reduced mortgage rate is offered for a certain period (usually during construction) (for example, 8% per annum). But after the end of this period, the rate rises to market values. “The bank also raises the rate at the end of the grace period if, when applying for a loan, a commission was paid for reducing the rate for a limited period,” the expert of Floors added.
Preferential programs
Basically, the same rules apply for preferential programs as for market ones. However, there are exceptions. Let’s look at some of them.
1. Violation of the principle of “one preferential mortgage in one hand”
Last December, the government approved the rule that preferential mortgages can be taken out once. This applies to all preferential programs with state support. Experts explain this decision by the fact that preferential programs were perceived as an investment and the borrower could apply for several preferential mortgages.
Under the new rules, the bank, upon learning about the availability of several preferential programs, has the right to raise the rate to the market rate and add additional unpaid amounts. Since the presence of a second preferential mortgage from a client can only be confirmed by the operator of state programs, as a rule, banks will find out about the fact of violation after issuing a loan, the VTB press service said. “The new rate is calculated based on the key rate effective on the date of conclusion of the loan agreement and a fixed surcharge. The “one preferential mortgage in one hand” rule applies not only to borrowers, but also to co—borrowers and guarantors,” VTB added.
According to Mikhail Lavrukhin, now there are massive cases when people took out several mortgages, and then their rates were increased. “For example, there is a case when a borrower took out mortgages in his own name, but the beneficiaries of the preferential programs were his relatives who did not pass under the terms of the program (we are talking about a family mortgage). The bank unilaterally raised the conditions to market ones,” the lawyer said.
2. Dismissal for IT specialists
For the participants of the IT mortgage, in addition to the one-time principle, the borrower’s work activity is important. To get a loan at a discounted rate, you need to work for an accredited company throughout the entire term of the contract. If this condition is violated, the loan rate may rise.
As specified in the Ministry of Finance, program participants can quit without paying off a preferential mortgage, but they need to get a job in a company that fits the conditions of the program within six months. “When you leave one organization, you have six months to get a job in another. During this time, the preferential rate is maintained,” they noted.
The loan rate may also be increased, “if the company’s accreditation was canceled, it did not submit consent to disclose tax secrets on time or no longer receives tax benefits, the company will not be on the list that the Federal Tax Service sends to the Ministry of Finance until May 25.” In this case, the borrower also has six months to get a job at a company that fits the terms of the preferential program.
3. Lack of registration
For the Far Eastern and Arctic mortgages, additional factors for raising the rate are the lack of registration with the borrower in the Far Eastern Federal District and the Arctic, and for doctors, teachers, defense industry workers — the lack of employment documents, the VTB press service explained. In this case, the mortgage rate may also rise to market values.
There is a similar condition for rural mortgages. “Borrowers under this program often miss the requirement of mandatory registration in the purchased housing. According to the rules of the program, if you do not register in the house within 180 days from the date of registration of ownership, the bank has the right to raise the loan rate to the level of the Central Bank’s key rate effective on the date of amendments to the agreement,” warned Alexander Chernokulsky, director of Zhilfond.
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