Factors to Consider Before Getting a Mortgage in Turkey

The Turkish residential mortgage market hasLet's note that if the interest rates were lower,
grown significantly over the last few years mainlythe optimum point for length of loan would be
driven by falling interest rates. The "Newmore than 10 years. For example, if the monthly
Mortgage" law that passed in March 2007 furtherinterest rate were 0.5%, the reduction in the
strengthened the legal background for bothmonthly payments would be 87%, 35% and 16%
primary and secondary market triggering afor 10 year, 20 year and 30 year loans
sudden increase in the mortgage product variety.respectively (as opposed to 82%, 18% and 4%
While there were only a few mortgage productswith 1.3% monthly interest rate). Similar length of
before the new mortgage law, currently thereloan comparisons can be computed with a
are more than 20 different mortgage productsmortgage payment vs. length of loan (i.e.,
for consumers.mortgage vade-taksit
However, the fast growth in the market has notkarşılaştırma ) comparison
been absorbed by the general public. Surveyscalculator.
show that more than 50% of the people don'tCost of the loan: Interest rates, commissions and
have sufficient understanding of the newfees
mortgage system. Moreover, most people haveThe most important thing consumers should do is
the perception that the new mortgage system iscalculating the real cost of the loan. The cost of
a miraculous system that will let them buy housesloan includes the interest rate, expertise costs,
without any savings and with very low monthlyinsurance costs and most importantly, fees and
payments. This article addresses some of thecommissions.
misconceptions and draws attention to the realityWhile interest rates of the banks are usually
by focusing on the real costs of mortgages.available on their web pages, most banks do not
Length of Loan and Interest Rate Relation: Whilechoose to publicize the commissions and fees
some banks have started to offer mortgageupfront. There are cases when consumers apply
loans up to 30 years in Turkey since the newfor mortgage and goes through all the paperwork
mortgage loan passed in March 2007, currentlywithout any clue about the fees up until the last
the mortgage rates in Turkey are too high to getsteps. Since it is usually known that fees are
a loan with loan length of longer than 10 years.overlooked by the consumers, some banks offer
The consumers would be better off with loanslow interest loans with significantly higher fees,
less than 10 years.which turn out costlier than the high-interest loans.
To demonstrate the irrationality of getting a loanSuch incidents can be avoided if the consumers
with a length of more than 10 years a simplesearch internet for the mortgage costs. provides
comparison of monthly payments in a few casescomprehensive information about the mortgage
will be sufficient. When monthly interest rate iscosts (i.e., mortgage masraf
around 1.30% for most banks, as it is inkarşılaştırma ) for every
November 2007, monthly payment of only 2-yearbank. Effective interest rates should be calculated
loan would be 4,877 New Turkish Lira (YTL).to compare the real costs of the loan across
Extending the length of the loan to 10 years,different mortgage products with fees included in
would decrease the monthly payments to 1,650the costs.
Turkish Lira, a 82% reduction in the monthlyEarly Closure Fees:
payment. While 82% reduction in monthlyEarly closure fees up to 2% of the remaining loan
payments is significant by extending the length ofapply to the fixed interest mortgages. Adjustable
the loan by 8 years, a further extension in therate mortgages can be closed without any closure
length of the loan does not decrease the monthlyfees. If you have a fixed interest mortgage and
payment significantly. For example, if the length ofinterest rates fall, it may be harder to refinance.
the loan is assumed to be 20 years, the monthlyYou may use the advanced refinance calculator to
payment will decrease to 1,361 YTL, an additionalfind the best refinance options for you (i.e.,
18% reduction from the monthly payment inrefinansman kredisi bul)
one-year loan. So increasing the length of the loanExpertise Expenses :
an additional 10 years decreases the monthlyBefore applying for a mortgage, consumers
payment by only 18% more. Even moreshould make sure that the real estate that they
interestingly, for 30-year loan, the monthlyplan to buy is eligible for mortgages. Otherwise,
payment decreases to 1,313 YTL, an additionalconsumers may need to pay the expertise
4% reduction in the monthly payment forexpenses (between 250 to 600 YTL) without
another extension of 10 years in the loan.being able to get the loan.