If we were to buy a house or apartment, we would often be inclined to overdo it. This is a dangerous thing. Not to mention that due to expected credit tightening, almost everyone is talking about long and short interest rates. Let’s interpret this question too!
What changes are expected?
News has risen recently that this autumn the Bank of Murray would significantly tighten some of its borrowing. They want to steer us away from borrowing short-term loans at a slightly higher rate with a higher interest rate. Why is this important?
Foreign currency loan risk
Many of us still remember the risk of foreign currency loans, specifically the credible mismatch of the Swiss franc. Lots of people went wrong. But why did this happen?
Previously, borrowings were more than three quarters of the Swiss franc-based loan because monthly installments were cheaper than forint loans. In spite of the fact that the exchange rate could be expected to be increased, few took it seriously.
Here is an example to show what the problem was . Let’s say we raised $ 11 million at 150 exchange rates. At that time, in fact, our debt was CHF 73,334. As long as the exchange rate did not move, there was no problem repaying the loan, and then the crash struck. The exchange rate of the franc-forint rose from 150 to 220 (the total exchange rate movement was 149 and 256 at that time). As a result, our total debt of CHF 73,334 was not HUF 11 million but HUF 16,133,333. Of course, our monthly repayment also increased proportionally, ie by approx. to one and a half times. And why is this important to us now?
An interest period is an option
Even if it does not pose as much risk as the aforementioned foreign currency credit risk, it is worth considering. Currently, we know that interest rates on loans are extremely low, as the central bank base rate is only 0.9%. As it begins to rise, it will be immediately felt in repaying our credit.
Let’s look at the interest rate period for the cheapest loans according to the loan calculator . This is shown on the left in the results. Let’s count on a flat 20-year $ 10 million home loan! We see that Khan Bank is offering the cheapest offer , as they have to pay back HUF 51,206 per month, but the interest period is 3 months. Conversely, at UniCredit Bank, the monthly installment is $ 55,065, but one year is guaranteed, not just 3 months.
This makes sense if the base rate increases by as much as 1% over the next six months, and the $ 51,000 repayment is likely to increase significantly, while the $ 55,000 will not. And remember, we don’t borrow for 1-2 years, but for 20-30 years. Of course, we can’t tell what’s going to happen, but it’s really worth considering whether what’s going to be the cheapest right now will be the long run.
According to the Bank of Murray, it is better to take a slightly higher monthly repayment, but less chance of a significant repayment rise. Let’s face it, that’s not a devil’s idea.
Of course, the decision is in our hands, which is why we should look closely at every little detail in borrowing . And here we are, and our job is to help you, so contact us! Rest assured that all your questions will be answered and together we will find the perfect solution.