Compensation to mortgage borrowers will be paid already in April: we explain how and who will receive it

By the end of April, mortgage borrowers will receive compensation for the interest paid in the first quarter of this year, reports LVportals.lv.

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Compensation to borrowers will be paid from the mortgage borrower protection fee. Both the mentioned fee and support for borrowers in 2024 are stipulated in Article 8.4 of the Consumer Rights Protection Law.

The law contains two criteria for the amount of support – the compensation is 30% of the interest paid, but it cannot exceed two percentage points of the interest rate determined for the period (total borrowing rate).

The compensation for each quarter will be calculated by the lenders (banks), who will notify the relevant amount to the State Revenue Service (SRS), which will transfer the compensation to the borrower’s account.

The SRS will pay the amount due to each borrower when the lender has calculated it for its clients and notified the SRS.
Interest compensation will be calculated and provided without the involvement of the borrower.

This means that there is no need to write an application to either the bank or the State Revenue Service.

Compensation will be automatically paid to everyone who is entitled to it, and in the amount calculated by law, taking into account certain criteria:

• the mortgage loan agreement is concluded until October 31, 2023;
• the balance of the mortgage loan does not exceed 250,000 euros;
• loan interest compensation is 30% of the quarterly interest payments;
• compensates no more than two percentage points from the interest rate determined for the period (total borrowing rate).
Those borrowers who have fixed rate loans (the rate is fixed from the conclusion of the contract) will not receive support.

Compensation will be paid only if the loan interest is paid.

Credit interest compensation is not subject to withholding, covering other payments and debt collection. However, it is important to know that if a person has an active debt collection case, the bailiff must be informed about the expected compensation.
In the methodological material developed by the Financial Industry Association (FNA) in cooperation with the SRS – on the application of the mortgage borrower’s protection fee in 2024 – various credit situations are explained with calculation examples. They clearly show how the amount to be paid in compensation is formed, taking into account the support of 30% of the amount paid as interest and the fact that no more than 2% is deducted from the rate for support.

This results in two results (subtotals) in the calculation. One – by applying the 2% threshold, and the other – by determining how much is 30% of the interest paid.

In order to determine the amount of compensation, the monthly calculated intermediate amounts of the previous quarter are summed up, the total amounts of the quarter are compared (30% of the interest payments paid in the quarter and a threshold of two percentage points) and the smaller of the two amounts is paid out.

Compensation is paid for any loan that has a variable interest rate or does not have a fixed interest rate for the entire contract period in accordance with the text of the contract, regardless of whether the loan is related to housing. The most important criterion is a mortgage, and the borrower is a consumer, and the threshold established by law is also observed.

If the borrower’s contractual obligations are no longer secured by the mortgage, but on 31.10.2023 or until 31.10.2023. the mortgage was valid and the borrower continues to pay the debt (for example by paying only the legal interest at the fixed interest rate in accordance with the agreement or fulfilling the repayment plan) that remained after the termination of the agreement by the lender, then the compensation is not paid because the loan is no longer secured by the mortgage , therefore, the prerequisite of the tenth part of Article 8.4 of the law is not fulfilled.

For the payment of compensation to the borrower, the creditor indicates to the SRS the same account of the borrower that is mentioned to the creditor as the account from which the loan is repaid.

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