First Home Or Regular Mortgage? First Home Programme, 100 EUR/Month Cheaper Than Regular Loans

Ana SĂbiescu

The State-driven First Home Programme intended to help Romanian buy their first home has somewhat revitalized the mortgage loan market, but not as much as bankers and real estate developers had hoped. The State guarantee seems to be the main difference between a mortgage loan taken via the First Home Programme and a regular mortgage loan. However, a careful comparison reveals more interesting aspects.

The loans offered under the First Home Programme are only available to applicants who do not have another mortgage loan in progress and did not own a home at the time when the Government ordinance regulating the Programme was published in the Official Journal. Any Romanian citizen, residing in Romania or not, who meets the above conditions can apply for a mortgage loan under the First Home Programme. Successful applicants cannot sell the respective property for five years after the time of purchase, according to information compiled by the loan broker Credit Zone.

The interest rate applicable within the First Home Programme is calculated based on ROBOR 3M for RON-denominated loans or EURIBOR 3M for EUR-denominated loans plus the bank"s margin of 2.5% p.a. for RON or 4% p.a. for EUR plus 0.37% p.a. of the debt balance as a management fee for the National Credit Guarantee Fund.

The maximum value of a mortgage loan taken under the First Home Programme with State guarantee is 57,000 EUR. The maximum debt-to-income ratio is 60%, according to Credit Zone. Another rule of the First Home Programme is that applicants need to make a deposit equal to the interest for three months upon signing the sale contract for the home. However, those who choose a regular mortgage loan have no interdiction to sell before five years, if they pay their mortgage, and do not have to make any such deposit.

In this case, the applicant needs to ensure the collateral and pay an interest rate significantly higher than what is offered under the First Home Programme. Credit Zone indicates that the bank"s margin for EUR-denominated loans is at least 6% (compared to 4% for a First Home loan). Additionally, the bank will charge a penalty of up to 4% for payments ahead of schedule, which is not applicable to the First Home Programme. The down payment is another significant difference. The minimum down payment required for the First Home Programme is 5% of the value of the property, which cannot exceed 60,000 EUR. The minimum down payment required for a regular mortgage loan varies between 10% and 25%.

Credit Zone brokers compared a loan taken from Banca Comerciala Romana (BCR) under the First Home Programme and a regular mortgage loan taken from the same bank. The loan used is the scenario amounts to 57,000 EUR for 30 years. The applicant and their family have an income of 4,200 RON.

The First Home loan would bear an interest rate of 5.06% p.a. (EURIBOR 3M plus 3.8% margin), a 0.5% disbursement fee and a 0.37% fee for the National Credit Guarantee Fund. The appraisal fee would be approximately 100 EUR, while the cost of registering the mortgage in the dedicated register would be 80 RON. The monthly service to such loan would be 309 EUR. Additionally, the customer would have to make a deposit equal to the interest due for three months.

The regular mortgage loan from BCR would come with an interest rate of 7.96% (EURIBOR 6M plus 6.5% margin) and a disbursement fee of 2.5%, which can be included in the cost of the loan. After factoring in all costs, the monthly service would be 417 EUR. Nevertheless, BCR requires a minimum down payment of 10% plus insurance for the property, which is approximately 0.2% of the value of the property. The fees for processing the application and appraising the property amount to 600 RON. The registration of the mortgage costs 85 RON. The penalty for payments ahead of schedule is 4.5% in the first three years, 3% between three and five years, 2.5% between five and ten years and 2% for over ten years.

According to the Credit Zone loan brokers, "the difference of approximately 100 EUR in the monthly payment can be a significant competitive advantage of the First Home loans, but customers should not overlook very important aspects such as the absence of other properties or mortgage loans in progress, the limit of the loan, which is only enough for a two-room apartment and the bureaucracy behind First Home loan applications. All this places limits the First Home Programme to a specific category of potential customers. This is why the First Home Programme turns from a solution for lending revival and economic recovery into a social programme."

"We should also consider that the introduction of this programme has caused the price of pre-owned apartments of one or two rooms to increase by 5% on the average, which has indirectly diminished the difference in the monthly payments towards First Home loans and regular mortgage loans," Credit Zone brokers also stressed.

Moreover, it should also be said that not all of the 20 banks that signed up for the First Home Programme in the end of June have completed the procedure. So far, only half of the banks that formally stated their intention to participate in the Programme have signed the guarantee agreements with the National Credit Guarantee Fund and can disburse loans under the First Home Programme.