While living in Croatia, you may make the big decision to purchase a home and discontinue renting. To purchase a home, most people must acquire a mortgage loan (called “hipotekarni kredit” or “hipoteka”) from a Croatian bank to fund their home purchase.
Mortgage loans usually have lower interest rates and longer repayment periods than consumer credit, so they can be more cost-effective.
A mortgage is a huge long-term obligation and you have to be well informed about it. The process of applying for a mortgage within Croatia does hold similarities to other nations, however there are certain differences one should be aware of before getting started.
#1 Creditworthiness assessment
Every lender will conduct a creditworthiness assessment (called “procjena kreditne sposobnosti“) as a first step. The lender can approve the mortgage loan only if they are sure that you will be able to pay it off.
The lender will:
- Examine your financial situation (assets and debts)
- Examine the value of the real estate you wish to purchase
- Request your income statements
- Request proof of your intention to purchase, which is proven with a contract with the owner
It is important to know that a lender will likely reject your application if:
- You want a mortgage to cover 100% of the property cost
- The property you wish to buy is located outside of Croatia
- You have temporary residency and are a non-EU national
- Your source of income comes from outside of Croatia
- You don’t have a registered address in Croatia
If you are a European Union member and you think that the lender discriminated against you based on your non-Croatian citizenship, you can:
- Contact the bank (specifically, the complaints office) and ask for a written statement of all reasons for rejection.
- Contact FIN-NET and ask for advice and help. This is a network for out-of-court settlement of financial disputes.
#2 Comparison and evaluation of offers
Before you decide on a lender, make sure you collect offers from several lenders as the terms can vary wildly from bank to bank. Every lender is obligated to provide you with an ESIS – Europski standardizirani informativni obrazac (European standardized information form) together with the offer for the mortgage loan.
ESIS includes all the important information about the mortgage. This document will include:
- Loan amount
- Loan’s duration period
- Interest rate type
- Total amount paid once repayment is fulfilled
- Effective interest rate
- All expenses you have to pay regularly or on a one-time basis
- Number of payments, frequency of payment, and amount of loan rates
- Information on the prepayment terms and prepayment fees
- An explanation of how changes in exchange rates could affect your mortgage loan (if your loan is paid in a foreign currency)
Collect several offers from different lenders and think about all the pros and cons of a single offer. Don’t hesitate to ask the lender for ESIS in case he didn’t deliver it together with the offer.
If you are receiving income into a Croatian bank account, it is possible that bank will give you the most favorable terms.
Check out our bank comparison of the top 7 banks in Croatia for some approximate mortgage interest rates.
#3 Offer examination period
The lender is obliged to give you a period of at least seven days for considering the offer.
The examination period is usually used for:
- Considering the offer and deciding whether it is right for you
- Canceling the loan agreement if you have already signed it
- Combination of both
To be certain of your rights, check with the lender what the examination period includes because it can differ from country to country and from one bank to another.
#4 Repaying the mortgage before time
You should know that it is usually possible to repay the whole mortgage or just a part of the debt before term concludes. Doing that is positive because you won’t have to pay as much interest, lowering the overall cost.
It is important to note that the government strictly forbids any banks from charging penalties for paying off your mortgage early.
#5 Mortgage insurance
When getting a mortgage, you have the option to insure the loan. Mortgage insurance is valuable when unforeseen circumstances arise that affect your ability to pay back your debt on time. An accident, a fatality, a serious illness or job loss can happen to anyone. With mortgage insurance, you can protect yourself in cases such as these.
Some lenders may require mortgage insurance. As part of the mortgage application, the lender can prepare an insurance policy along with your mortgage agreement. However, you do not need to purchase this insurance through the same bank as the loan. You can seek out better offers from other insurers.
If you’re considering to get a mortgage loan, be sure to also check out these 11 things you must know about getting a mortgage.
Want to know more about buying real estate in Croatia? Check out our other property-related posts here.
Have you received a mortgage in Croatia? What was your experience like? Tell us in the comments.
Please note: All information provided by Expat in Croatia is only for the purposes of guidance. It does not constitute legal or financial advice in any form. For legal advice, you must consult with a licensed Croatian lawyer. For financial advice, you must consult with a licensed Croatian tax advisor or accountant. We can recommend one if you contact us.