Factors to Consider Before Getting a Mortgage in Turkey

The Turkish residential mortgage market haspayment decreases to 1,313 YTL, an additional
grown significantly over the last few years mainly4% reduction in the monthly payment for
driven by falling interest rates. The "Newanother extension of 10 years in the loan.
Mortgage" law that passed in March 2007 furtherLet's note that if the interest rates were lower,
strengthened the legal background for boththe optimum point for length of loan would be
primary and secondary market triggering amore than 10 years. For example, if the monthly
sudden increase in the mortgage product variety.interest rate were 0.5%, the reduction in the
While there were only a few mortgage productsmonthly payments would be 87%, 35% and 16%
before the new mortgage law, currently therefor 10 year, 20 year and 30 year loans
are more than 20 different mortgage productsrespectively (as opposed to 82%, 18% and 4%
for consumers.with 1.3% monthly interest rate). Similar length of
However, the fast growth in the market has notloan comparisons can be computed with a
been absorbed by the general public. Surveysmortgage payment vs. length of loan (i.e.,
show that more than 50% of the people don'tmortgage vade-taksit
have sufficient understanding of the newkarşılaştırma )
mortgage system. Moreover, most people havecomparison calculator.
the perception that the new mortgage system isCost of the loan: Interest rates, commissions and
a miraculous system that will let them buy housesfees
without any savings and with very low monthlyThe most important thing consumers should do is
payments. This article addresses some of thecalculating the real cost of the loan. The cost of
misconceptions and draws attention to the realityloan includes the interest rate, expertise costs,
by focusing on the real costs of mortgages.insurance costs and most importantly, fees and
Length of Loan and Interest Rate Relation: Whilecommissions.
some banks have started to offer mortgageWhile interest rates of the banks are usually
loans up to 30 years in Turkey since the newavailable on their web pages, most banks do not
mortgage loan passed in March 2007, currentlychoose to publicize the commissions and fees
the mortgage rates in Turkey are too high to getupfront. There are cases when consumers apply
a loan with loan length of longer than 10 years.for mortgage and goes through all the paperwork
The consumers would be better off with loanswithout any clue about the fees up until the last
less than 10 years.steps. Since it is usually known that fees are
To demonstrate the irrationality of getting a loanoverlooked by the consumers, some banks offer
with a length of more than 10 years a simplelow interest loans with significantly higher fees,
comparison of monthly payments in a few caseswhich turn out costlier than the high-interest loans.
will be sufficient. When monthly interest rate isSuch incidents can be avoided if the consumers
around 1.30% for most banks, as it is insearch internet for the mortgage costs. provides
November 2007, monthly payment of only 2-yearcomprehensive information about the mortgage
loan would be 4,877 New Turkish Lira (YTL).costs for every bank. Effective interest rates
Extending the length of the loan to 10 years,should be calculated to compare the real costs of
would decrease the monthly payments to 1,650the loan across different mortgage products with
Turkish Lira, a 82% reduction in the monthlyfees included in the costs.
payment. While 82% reduction in monthlyEarly Closure Fees:
payments is significant by extending the length ofEarly closure fees up to 2% of the remaining loan
the loan by 8 years, a further extension in theapply to the fixed interest mortgages. Adjustable
length of the loan does not decrease the monthlyrate mortgages can be closed without any closure
payment significantly. For example, if the length offees.
the loan is assumed to be 20 years, the monthlyExpertise Expenses :
payment will decrease to 1,361 YTL, an additionalBefore applying for a mortgage, consumers
18% reduction from the monthly payment inshould make sure that the real estate that they
one-year loan. So increasing the length of the loanplan to buy is eligible for mortgages. Otherwise,
an additional 10 years decreases the monthlyconsumers may need to pay the expertise
payment by only 18% more. Even moreexpenses (between 250 to 600 YTL) without
interestingly, for 30-year loan, the monthlybeing able to get the loan.