How to choose a mortgage and not overpay the bank

The total cost of credit (TCC) is an indicator that includes every payment on the loan: interest, fees, insurance, mandatory payments to third parties. By law banks are required to disclose it in the contract. The TCC is what to compare across banks — the difference from the advertised rate can be 2–5 percentage points.

Ask each bank for a full payment schedule (amortisation schedule). Add up every payment over the entire term and subtract the loan amount. That is your real overpayment. On a 60,000 AZN loan at 12% for 15 years, the overpayment will be around 65,000 AZN — you will give the bank more than the flat cost.

Some banks charge a one-off origination fee: 0.5–2% of the loan amount. On 60,000 AZN that is 300–1,200 AZN paid up front. 'A rate of 10% with no fee' is often better than 'a rate of 9% with a 1% fee'.

The rate does not change for the entire term, even if the central bank's policy rate rises. You know your monthly payment exactly — this makes budgeting easier for years ahead.

A variable rate is tied to an interbank benchmark plus a fixed bank margin. If the central-bank rate rises by 3%, your payment can rise by 15–25%. Take a variable rate only if you understand this risk and have an income buffer.

A number of banks offer a rate that is fixed for the first 3–5 years and variable thereafter. In the early years the payment goes mostly on interest, and if the rate rises later, refinancing may turn out unprofitable.

Insurance of the pledged property (the flat itself) against physical damage is a legal requirement of the bank for a mortgage. The price is around 0.1–0.3% of the flat's value per year. You are entitled to choose the insurer yourself — you do not have to use the bank's affiliated company.

The bank cannot impose life insurance as mandatory, but without it banks often offer a rate 0.5–2% higher. Calculate: if the rate discount exceeds the cost of the policy, insuring yourself is the better deal.

Job-loss insurance and accident insurance 'in a bundle' with the mortgage are often sold as an add-on. Read what is actually covered. If the payout conditions are restrictive or the cover amount is token, decline.

Some banks ban early repayment during the first 6–12 months or charge a penalty. If you plan to repay faster, this clause should be penalty-free. Early repayment, even in small amounts, disproportionately reduces the overpayment on a long loan.

On a partial early repayment, the bank usually offers two options: shorten the term of the loan or reduce the monthly payment. Shortening the term saves significantly more on interest. Reducing the payment is better if your income is unstable and you need a buffer.