When talking about mortgage in Latvia, two types of loans can be distinguished: the regular one and the government-supported one. This article deals with the regular loan, while the government-supported mortgage is meant for families with children.
In Latvia, there are around 6 major banks, as well as a number of smaller and/or specialised crediting institutions that offer dedicated mortgages. Other banks may also offer consumer credits, but these are not treated as specialised property loans, meaning that the conditions are less favourable.
The procedure of applying for mortgage in Latvia is rather straightforward in any of these institutions - choose your sum, prepare the documents, apply, receive the answer. The details and conditions, however, are different in each case, so it is highly recommended to approach a property guidance company, so that they mediate your wishes to the bank of your choosing. This way, you will not have to deal with numerous visits all by yourself, if in the middle of negotiations you discover that this particular bank does not offer what you want.
Choosing a bank
In order to receive the best mortgage possible, it is important to evaluate all the different bank offers. There is a number of steps you can follow to acquire the most precise information and be able to make the most advantageous decision. Latvian mortgage experts recommend the following:
- Analyze the total sum you need for buying a property
- It is important to remember that you will need money not only to cover the price of the desired property, but also to pay for property appraisal and for insurance. If you do not have additional funds, it is advisable to include them in the mortgage application. Then, adjust your criteria for choosing a bank in accordance with this new sum.
- Do not stick with an unfavourable bank only because you have used its services before
- Some people, especially private individuals, tend to stick with the bank they have worked previously, even if the bank’s offer is far from ideal. Latvian banking market is diverse and competitive enough - it is advantageous for you to re-evaluate all of them for each new deal. And, again, a skilled property guidance agency will do it for you, thus saving you the trouble of actually comparing the offers.
- Choose a bank first, then choose a property
- In general, it is better to be sure what deal can a bank offer and which sum is available before you start searching for a property. The possible maximum mortgage directly determines, what kind of property one should search for. Additionally, some Latvian property owners may even be hesitant to start negotiations with you, if they are not sure that a bank will even grant you any mortgage. This is especially relevant for highly desirable real estate, as competition is high, and its owners will naturally gravitate towards potential buyers who have more tangible mortgage prospects. One such indicator of tangibility is a bank’s assurance that you are eligible for a mortgage of a certain size.
- Understand the difference between a fixed and a variable rate
- A fixed interest rate is an interest rate that does not change over time. A variable interest rate is an interest rate that is once in a while (usually every 3 or 6 months) adjusted to reflect various external economic parameters. The variable rate consists of two parts: a fixed part (not to be confused with the fixed rate) and a variable part (not to be confused with the variable rate). The fixed part is an average interest rate of different major banks. The variable part is just a part that can be set at any value by the bank itself to protect it from economic fluctuations and instabilities.
- Research the components of the rates
- As described in the previous point, banks use a number of rates, consisting of a number of parts. The change rates can be different for different parts of the variable interest rate. Moreover, even a fixed interest rate can be adjusted every couple of years, if your agreement with the bank agreement allows for it. Each of these data points should be considered very carefully, because these are the numbers that will eventually determine, how much money you will have to pay back. In some sense, they are the most important part of evaluating any mortgage offer.
Credit standing evaluation
Before issuing a loan, any bank evaluates its client’ credit standing, which is the ability of the customer to afford a loan. While each bank may employ its own methods for such an evaluations, there is a list of parameters that are considered the most often:
- whether a client has a guarantor
- existing loans and sums paid to cover them
- number of income sources
- stability of the income source
- number of persons in custody (e.g. children in the family)
- previous credit history
Parameters such as income and the number of persons in custody must be proven with relevant documents, which is why it is highly advised to prepare all the necessary documentation beforehand.
The number and stability of income sources are very important factors - some banks require private persons to have up to two years of uninterrupted employment to be considered for a mortgage. Naturally, if you are a corporate client, this does not apply to you as much, but it is still important to prove that your source of income is stable and predictable in the long term.