Mortgages: Both Sides of the Medal

Part 1
Decades, not years
When taking the decision to apply for a mortgage, the first thing to assess is ones own financial
strength. A maximum of prudence should be used, as mortgages are serviced over decades.
However, according to the Head of Mortgage and Consumer Lending at SMP Bank, Natalia
Konyakhina, the loans term can be determined by the borrower himself. Basically, people take
out a mortgage for 10 to 15 years and repay within 5 to 7 years, she says. The longer the
term, the greater the interest premium paid to the bank, warns Dmitry Leus from . If income
allows it, I advise early mortgage repayment.
When making a decision about buying a property with a mortgage, it is important not to be
frightened. In fact, for most people mortgages are the only way to turn into home owners,
without having to save up for years (and see these savings finally eroded by inflation).
According to Dmitry Leus, mortgages are a time-tested, relatively comfortable, streamlined,
and affordable tool to solve the housing question.
On the other hand, it would be misguided to take mortgages lightly. Repayment is mandatory
and must be made on a regular basis, unless your home be repossessed. Accordingly, it is
necessary to calculate what portion of family income can comfortably be spent on repayment without living on bread and water.

What it takes
While deciding on a mortgage, it is not only the borrower who assesses his financial capacities.
So does the bank...
The borrower must have a stable job, argues Natalia Konyakhina. It is a good sign if the
borrower already owns an apartment, a secondary residence, a car, or any other assets of
value. Equally important is a positive credit history.
An official proof of income is an icebreaker for most banks, says Dmitry Leus. However, even
the existence of historical income figures as, for example, evidenced in an applicants official tax
declaration, cannot guarantee that such income will always be available over the mortgages
life. Therefore banks are more and more often using internal questionnaires to document the
income history of their potential clients. As a consequence, interest rates may be slightly higher.

The average borrowers age is between 27 and 45, but the range may be wider. Our applicants
tend to be between 21 and 60 years old, says Dmitry Leus.

Better not bet

Another important aspect worth consideration is the loan currency. It is better to take out a
mortgage in the currency of the borrowers income, in order to avoid increased mortgage costs
due to exchange rate fluctuations, says Natalya Konyakhina.
For borrowers with income in Russian roubles, the mortgage should, of course, only be taken
in roubles, agrees Sergey Arzyantsev. It is nonsense to take a mortgage loan denominated in
dollars/euros, thereby entering into a bet on whether the dollar/euro currency pair will weaken
against the rouble. If the borrower's main income is in roubles, the mortgage should definitely
be in roubles too, confirms Dmitry Leus from . This will at least help avoid taking an

unnecessary currency risk. According to Dmitry Leus, it is important not to be naive about
floating rate mortgage proposals, which are normally linked to such instruments as the
MosPrime (Moscow Prime Offered Rate), or the Libor (London Interbank Offered Rate), or to
the Central Banks own refinancing rate. I am very cautious with regard to this option, says
Dmitry Leus. Interest rates can only go up right now and, in general, when it comes to
mortgages, exchange rate uncertainty is an undesirable additional burden for the borrower.
On the other hand, by making a simple calculation, one can see that floating rate offers can look
quite attractive. For example, one bank offers 9.75% for the first five years, and 4.5% above
MosPrime (today at 6.64%) during the remaining years.