Having run their course in competition over interest rates, local banks are currently focusing on competing on the basis of offers and the flexibility of their mortgage loans. Just weeks before the year’s end, competition between banks has reached a peak with last-minute offers and interest rates that are even lower than what the money costs them. As a result of intense competition, interest rates have been driven to levels even lower than the cost, i.e. 4.85 percent, which is the Euribor rate that reflects the cost of interbank borrowing. In some extreme cases, mortgage interest rates have gone even lower than 4.0 percent, the basic refinancing rate set by the European Central Bank. Clients wishing to take out a mortgage loan are scrutinizing the banking market for better opportunities, with one of their best weapons being the ability to take their loan to another bank after an initial period of time, ranging from one to three years. In their efforts to avert the likelihood of customers transferring their loans after a certain period to other banks on more favorable terms, banks are resorting to certain safety valves aimed at binding customers for a long period of time. This is why behind privileged terms lie some contractual obligations, which actually cancel the favorable terms if defaulted. Fixed rate Capitalizing on the shift toward fixed-rate loans, which are greatly preferred by those who take out mortgages, banks are making efforts to keep demand at high levels for the specific category of loans. This guarantees stability for a specific period of time and gives customers freedom of choice upon termination of the fixed-rate period. A main criterion in choosing the right mortgage is the degree of freedom of choice offered by each bank to borrowers, and to what degree borrowers can opt for fixed or floating rate after the end of the initial period. Many banks force their customers to return to the floating interest rate after the more favorable fixed-rate period is over. A floating rate is much higher than the starting fixed rate. On the other hand, some other banks allow their customers to weigh market conditions and choose the best solution for themselves, with no commitments nor penalties. In an effort to prevent customers from transferring the balance of their loan to another bank, which has been an increasingly popular trend in recent years, credit institutions are resorting to certain safety measures. Safety measures Such measures include a commitment by the customer to pay back the amount of the interest rate subsidy, i.e. the amount that the bank missed as a result of its privileged pricing of its loan product. This amount is calculated based on the rate that the bank would have collected had it priced its product on the basis of the mean rate applied on non-subsidized loan categories. For example, if a subsidized rate was set at 3.75 percent for two years, and the non-subsidized rate was 4.80 percent, a borrower would be required to pay the differential for the period of time that they received the subsidized rate. The need to prevent similar eventualities arose when banks realized that some of their customers first reaped the benefits offered by the bank and then transferred the loan to another bank at more favorable terms. Similar terms are now an inseparable part of all new loan contracts, especially when the loan provides for a subsidized interest rate. Some banks require payment of a penalty for early mortgage repayment, even in cases where the repayment regards a floating-rate loan. Bank officials say that a bank must recap the money it loses when the term of collection of a stable income for a long period of time is over. Penalty justification The imposition of penalties is also justified by the fact that, in the case of an amortization type of a loan, in the initial contractual phase the borrower repays only the amount of interest. According to the same estimates, a loan presupposes a maturity period to allow the bank to cover its operational costs, with bank officials explaining that the actual repayment of the loan starts around the middle of a loan’s repayment period.