Types of Mortgages Offered by Banks in Turkey

With the new mortgage bill that became effective on March 2007, banks in Turkey started to ofer a variety of mortgage products to their customers, tailored to each individual’s needs. These products and the rates differ widely from bank to bank when you include loan duration, down payment, commission fees, prepayment options and fees etc. All of these variables make decision making much more confusing to the customer. In addition, when you add foreign currency based lending, different closing costs for each bank, expertise fees, etc, choosing the best mortgage product suitable for the customer turns into a multivariate optimization problem. Therefore, the role of the mortgage broker becomes critical. To better assist his clients and find the best mortgage product and the rate, a broker must have many years of experience in their fields, in finance, and in real estate business. In addition, it is vital that a mortgage broker must be equipped with the top of the line financial calculators and mortgage software, and access to up-to-date rates and products offered by banks.

Mortgage types being offered in Turkey can be classified as follows:

1. Fixed Rate Mortgages:

This is the most common mortgage type offered and given by all of the banks. The loan duration and the monthly payments are fixed and thus do not change through out the life of the mortgage. The borrower can payoff the entire loan with a prepayment option, however there is an early closing fee, which could be up to 2% of the loan amount.

2. Variable Rate Mortgages:

This type of mortgage is based on a variable rate specified by the bank and the federal bank and changes with the rate changes in the markets. Borrowers should pay attention to setting a ceiling rate when negotiating with the bank so that when the rates change their payments do not go above a certain rate. The early closing fee that exists in fixed rate mortgage does not exist in this type of mortgage.

3. All Inclusive Mortgage:

If the borrower wants to include all the fees associated with the purchase of his home and the mortgage in the mortgage, this type of mortgage would be the most ideal one. These fees are are realtor commision, life and porperty insurance premiums, disaster insurance, moving fees, closing fees, expertise fees, etc. The amoun of these fees depend on the property and the lender. However, all of these fees could be included in the mortgage and be bundled as the mortgage package.

4. Discounted Commision based Mortgage:

If the borrower is interested in low monthly payments, he/she then can choose to pay a commision up front which consists of a percentage of the interest that needs to be paid. After subtracting this amount from the loan, the monthly payments would be lower. These types of mortgages have higher closing fees than other types, however. The early closing fee aplies to this mortgage as well.

5. Mortgage with payments specified at different months:

If the borrower is interested in making payments on only certain months, then this type of mortgage would be the most ideal one.

6. Zero Down Mortgage:

For those who has another property, this property can be used as a collateral to finance the purchase of the next property. If the other property has a higher value, then the collateral could cover the entire mortgage of the new house, thus making it a zero down mortgage payment. One thing that the borrowers should pay attention to is that most banks give mortgages up to 80% of the value of the property.

7. Foreign Currency Indexed Mortgage:

In addition to mortgages given in YTL (New Turkish Lira) currency, banks started to give out mortgage loans in other currencies as well. Some of these currencies are USD, EUR, GBP, CHF, and JPY. These types of foreign currency indexed mortgages can be obtained both as fixed rate and variable rate mortgages.

8. Refinance Mortgage:

The refinance option is now available as well. In case borrowers are interested in refinancing their mortgages with lower interest rates, they can change the mortgage either through the bank that they obtained the mortgage of through any other lender. The only caviat in applying for refinance in Turkey is that if your mortgage was applied prior to March 6th 2007, there will not be an early closing fee. However, if it started after that date, then there will be an early closing or early prepayment fee applied which could be up to 2% of the loan amount. The borrower also needs to pay for all associated fees related to the new mortgage.

9. Home Equity or Personal Loan Mortgage:

If the borrower is in need of additional finances, he/she can choose to get a loan by using his/her property as a collateral. This loan could be applied to home improvement as well as any other personal need. They are usually given at a higher interest rate than other types of loans but less than regular personal loans.

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