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03/02/2008

Is buying a holiday home overseas with a 100% mortgage a wise move? The Greece example

For the majority of people looking for a holiday home abroad, a housing loan or mortgage that will provide them with 100% of the house value seems like a gift rather than an option. We are at a time where people receive offers of this kind via e mail.

However, it is a well known fact that the higher the mortgage you are looking for, the higher its cost is to you. Naturally, there are always positive options on offer in countries like Greece, one of the countries with a highly attractive real estate market. In this article we will examine Greece more carefully.

Within 2007 the interest rates on offer started from as low as 2,95%. Naturally, this was the base interest rate, not including house, life insurance or the legally required state contribution. A realistic expectation of an interest rate including these additions is between an average of 4% and 5%.

Fixed interest rates on offer start from 1 year and can reach even more than 20 years depending on the bank. Naturally opting for a fixed interest rate for more than 3 years usually guarantees that the interest rate will exceed 5%.

There is not really a minimum mortgage amount (i.e. some banks mention 3.000,00 euro as a starting point) while it is possible to obtain up to 90% or even 100% mortgage of the property value in some cases.

The repayment period for mortgages is up to 40 years, again depending on the bank, while one can repay it up to the age of 75. There are also financial institutions which offer the option of paying only the interest for the first two years of the mortgage. The installments of the housing loan are always paid after the money is released to the applicant. As in most countries, the banks based in Greece usually request for proof of income from the applicants which is usually supplied through their tax declaration documents.

The question remains: Should someone go for a 100% mortgage? First of all, the recent sub prime crisis in the United States of America (USA) apart from creating hundreds of thousands homeless until recently house owners, has also made banks around the world more careful with their housing loan options. Even in Greece articles in various newspapers such as "Kathimerini" or "Proto Thema" highlighted on Sunday 3rd of February 2008 the fact that Greek banks are going to increase the cost of mortgages and reduce the percentage they offer to cover. This implies that, 90% or 100% funding will soon seize to exist as an option while housing interest rates may soon rise.

As expected, Greek banks want to reduce their risk in this way but at the same time they protect the interested purchaser. Despite the fact that protecting the consumer is not any banks' top priority this helps us to answer the initial question put in the title of this article. Acquiring a housing loan will always be an option, but as a holiday, permanent or investment home seeker you may always keep in mind that there are two ways of reducing your risk:

  1. Available funds enable you to acquire a smaller mortgage amount and thus pay less interest. Always set a realistic amount as your available budget without over stretching your self. At the same time it would be recommended that a minimum 15% deposit is secured before you commence your research in order to buy a home overseas.
  2. Select a country and most importantly a location with a combination of what you are looking for and relatively low mortgage rates. Greece is the example that has been given so far and Crete could be a suggested location. A location is vital for the long term property value and in the island of Crete the real estate market has a relatively modest raise of 10% to 15% per year which makes it stand out when compared with the rest of Greece as a safe investment destination.

Taking these small steps may protect you while purchasing a property overseas and help you to turn this process into a more enjoyable and safe experience.

This article has been written by Nektaria Kladitis, owner of Talos Properties.

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