Amendments to a number of laws and regulations came into force in 2024 to simplify mortgage refinancing between lenders for residents. Until now, residents have used this option rather infrequently, as in December 2023 amendments were made to the Consumer Rights Protection Law, providing for a compensation of 30% of the total loan interest payments. To avoid losing this compensation, it was not advantageous for the majority of borrowers to refinance the mortgage loans received by 31 October 2023. The final compensation will be paid in January 2025. As a result, mortgage borrowers will be able to consider improving the terms of their loans by evaluating the conditions in their own and competing commercial banks or other financial institutions that provide mortgage loans.
The amendments aim to simplify mortgage refinancing and reduce costs, thus ensuring competition between lenders. In this respect, amendments have been made to the Consumer Rights Protection Law, the Insurance Contract Law, the Credit Institution Law, and the Notariate Law, as well as to two Cabinet regulations (Regulations Regarding Consumer Credit and Regulations Regarding the State Assistance in Purchase or Construction of Residential Space).
The refinancing process currently takes no more than two months. For customers, it is much simpler now than before the amendments were adopted. Borrowers should approach the prospective lender, evaluate the offer, conclude a new mortgage agreement, and remotely authenticate their signature on the request for corroboration for the transfer of collateral rights in favour of the new lender at a sworn notary. The entire process can be implemented remotely.
To allow every borrower to compare their loan interest rates with the average markup of currently issued loans and to calculate their benefit from refinancing, Latvijas Banka has developed and published an interest rate comparison tool and a refinancing calculator on the "Money School" website.
There, a step-by-step description of the refinancing process is available, along with detailed explanations and answers to potential questions.
Latvijas Banka invites borrowers to use these tools to conveniently and swiftly assess their ability to reduce monthly loan payments. It is highly likely that, upon receiving an offer from a competing lender, the initial lender will want to prevent the customer from leaving and will offer even more favourable lending conditions. Similar trends are observed, for example, in the market of mobile operators, where service providers compete for customers by offering more favourable conditions.
Amendments to the Consumer Rights Protection Law stipulate that a consumer cannot be charged a fee for refinancing or be required to pay compensation (however, this does not apply to mortgage loans with a fixed interest rate). The fee for concluding a new loan agreement or issuing a loan does not exceed 1% of the new mortgage loan amount. The consumer has the right to divide this fee into three instalments. Such a fee must not exceed the fee that the new lender applies at that moment for issuing new non-refinanced mortgage loans. Although the specific refinancing process costs for each loan may vary, the cost positions in most cases will be similar: real estate valuation (approximately 140–350 euro), notary and Land Register service expenses, which should not exceed 100 euro, as well as the loan issuance commission, if applicable.
Previously, refinancing costs could reach 2–5% of the value of a typical outstanding loan. Therefore, refinancing activity in Latvia was low and, as indicated by a European Commission study, significantly lagged behind other European Union countries.
The assessment of Latvijas Banka's economists suggests that about 48% of borrowers could be financially motivated to refinance their mortgage loans with the new conditions. Meanwhile, assuming that only the borrowers whose savings would be at least 1000 euro would refinance their loans, total savings would constitute almost 90 million euro.
The financial literacy experts of Latvijas Banka have developed general recommendations to prevent loan payments from becoming an unbearable burden.