Family Mortgage loans for over 15 years: advice for banks and borrowers
From 1 October, Family Mortgage loans may still be issued for long terms. However, the Bank of Russia reminds banks in its Information Letter that the government interest rate subsidies have been limited to 15 years.
In accordance with the programme rules, the loan interest rate may be increased after the first 15 years by no more than 4 pp, but it must not exceed the key rate effective at that time plus 3 pp (plus 3.5 pp for loans to finance the construction of single-family homes).
When preparing the payment schedule, banks must assume that the loan rate will be increased by 4 pp after the expiry of the subsidised period, unless a lower rate is set forth in the loan agreement. At the same time, banks are advised to inform borrowers that the amount of payments due after the first 15 years may change depending on the key rate.
It is also recommended to calculate the borrower’s debt burden and the total cost of credit for the period after the first 15 years based on the loan rate increased by 4 pp, unless the loan agreement specifies a lower rate. These measures will help mitigate banks’ and borrowers’ risks, while maintaining the availability of Family Mortgage loans for over 15 years.