| The Turkish residential mortgage market has | | | | lower, the optimum point for length of loan |
| grown significantly over the last few years | | | | would be more than 10 years. For example, if |
| mainly driven by falling interest rates. The | | | | the monthly interest rate were 0.5%, the |
| "New Mortgage" law that passed in March 2007 | | | | reduction in the monthly payments would be |
| further strengthened the legal background for | | | | 87%, 35% and 16% for 10 year, 20 year and 30 |
| both primary and secondary market triggering | | | | year loans respectively (as opposed to 82%, |
| a sudden increase in the mortgage product | | | | 18% and 4% with 1.3% monthly interest rate). |
| variety. While there were only a few mortgage | | | | Similar length of loan comparisons can be |
| products before the new mortgage law, | | | | computed with a mortgage payment vs. length |
| currently there are more than 20 different | | | | of loan (i.e., mortgage vade-taksit |
| mortgage products for consumers. | | | | karşılaştırma ) comparison |
| | | | calculator. |
| However, the fast growth in the market has | | | | |
| not been absorbed by the general public. | | | | Cost of the loan: Interest rates, commissions |
| Surveys show that more than 50% of the people | | | | and fees |
| don't have sufficient understanding of the | | | | |
| new mortgage system. Moreover, most people | | | | The most important thing consumers should do |
| have the perception that the new mortgage | | | | is calculating the real cost of the loan. The |
| system is a miraculous system that will let | | | | cost of loan includes the interest rate, |
| them buy houses without any savings and with | | | | expertise costs, insurance costs and most |
| very low monthly payments. This article | | | | importantly, fees and commissions. |
| addresses some of the misconceptions and | | | | |
| draws attention to the reality by focusing on | | | | While interest rates of the banks are usually |
| the real costs of mortgages. | | | | available on their web pages, most banks do |
| | | | not choose to publicize the commissions and |
| Length of Loan and Interest Rate Relation: | | | | fees upfront. There are cases when consumers |
| While some banks have started to offer | | | | apply for mortgage and goes through all the |
| mortgage loans up to 30 years in Turkey since | | | | paperwork without any clue about the fees up |
| the new mortgage loan passed in March 2007, | | | | until the last steps. Since it is usually |
| currently the mortgage rates in Turkey are | | | | known that fees are overlooked by the |
| too high to get a loan with loan length of | | | | consumers, some banks offer low interest |
| longer than 10 years. The consumers would be | | | | loans with significantly higher fees, which |
| better off with loans less than 10 years. | | | | turn out costlier than the high-interest |
| | | | loans. Such incidents can be avoided if the |
| To demonstrate the irrationality of getting a | | | | consumers search internet for the mortgage |
| loan with a length of more than 10 years a | | | | costs. provides comprehensive information |
| simple comparison of monthly payments in a | | | | about the mortgage costs (i.e., mortgage |
| few cases will be sufficient. When monthly | | | | masraf karşılaştırma ) for every |
| interest rate is around 1.30% for most banks, | | | | bank. Effective interest rates should be |
| as it is in November 2007, monthly payment of | | | | calculated to compare the real costs of the |
| only 2-year loan would be 4,877 New Turkish | | | | loan across different mortgage products with |
| Lira (YTL). Extending the length of the loan | | | | fees included in the costs. |
| to 10 years, would decrease the monthly | | | | |
| payments to 1,650 Turkish Lira, a 82% | | | | Early Closure Fees: |
| reduction in the monthly payment. While 82% | | | | |
| reduction in monthly payments is significant | | | | Early closure fees up to 2% of the remaining |
| by extending the length of the loan by 8 | | | | loan apply to the fixed interest mortgages. |
| years, a further extension in the length of | | | | Adjustable rate mortgages can be closed |
| the loan does not decrease the monthly | | | | without any closure fees. If you have a fixed |
| payment significantly. For example, if the | | | | interest mortgage and interest rates fall, it |
| length of the loan is assumed to be 20 years, | | | | may be harder to refinance. You may use the |
| the monthly payment will decrease to 1,361 | | | | advanced refinance calculator to find the |
| YTL, an additional 18% reduction from the | | | | best refinance options for you (i.e., |
| monthly payment in one-year loan. So | | | | refinansman kredisi bul) |
| increasing the length of the loan an | | | | |
| additional 10 years decreases the monthly | | | | Expertise Expenses : |
| payment by only 18% more. Even more | | | | |
| interestingly, for 30-year loan, the monthly | | | | Before applying for a mortgage, consumers |
| payment decreases to 1,313 YTL, an additional | | | | should make sure that the real estate that |
| 4% reduction in the monthly payment for | | | | they plan to buy is eligible for mortgages. |
| another extension of 10 years in the loan. | | | | Otherwise, consumers may need to pay the |
| | | | expertise expenses (between 250 to 600 YTL) |
| Let's note that if the interest rates were | | | | without being able to get the loan. |