Growing Home Loan Interest Rates: We Tell You How To Avoid The Toxic Repayment
Homeowners have come across this kind of thing for a very long time: repayment installments at several banks have begun to rise again, as the international sentiment is pushing up benchmark yields, which in turn affects credit rates. Compared to the beginning of the year, the repayment of creditors may increase by several thousand forints. Floating rate mortgage lenders may be the worst, but the price increase is also felt on fixed rate loans.
According to Dave analysis, interest rates on forint loans offered by banks have also risen due to rising benchmark yields. The change affects not only floating rate loans but also fixed rate loans.
But what does this mean for installments? Trouble with your floating rate loan? How can you overcome the rising installment? These are also covered in this article.
Loans are getting more expensive, banks are watching
The cautious rise has been on floating rate loans since the beginning of the year, but more and more fixed-rate products have seen a change, a phenomenon unprecedented in recent months.
For example, Goodbank Bank’s fixed-rate mortgage loan for the duration of 10 years, excluding discounts, rose from 5.10 percent in June to 5.90 percent, a difference of 0.80 percentage points. At E-money Bank, the interest rate on fixed-rate mortgages also increased from 6.15 percent to 6.72 percent, with a 0.25 percentage point increase at Fix10 and Fix5 and 0.35 percentage points at Erste Bank.
What determines your forint loan interest rate?
While for fixed rate loans you do not need to be afraid of a change in interest rates over the life of a fixed rate loan, there are two things that influence the interest rate of a loan and the amount of installments you pay on it:
- the reference rate
- and the interest premium
Interest surcharge: The interest rate surcharge is determined by the bank based on how risky you are to lend, subject to strict conditions by the central bank. The financial institution may adjust the interest rate premium up to the amount calculated using the interest rate change indicator also available on the website of the National Bank of Hungary, so that the interest margin has little influence on the size of your repayment.
So, if your loan is a floating rate loan with a 3, 6 or 12 month interest rate, the bank will check every 3, 6 or 12 months how the reference rate has changed and adjust the interest rate on your loan. And if interest increases, it also means an increase in your installment.
How much can your installment increase?
According to Dave analysis, even a few percentage point shift in the reference rate can increase the installment by heavy thousands. For example, a financial institution’s $ 15,000,000 12-month Good Finance loan showed a 2.7 percent increase, which increases the current repayment by $ 2,500 over a 20-year term.
For example, in the case of fixed-rate loans, the repayment of a fixed-rate loan for a fixed term of 10 years will be HUF 2,468 more monthly than one of the leading domestic financial institutions and a difference of HUF 5,500 over a 5-year period. Of course, depending on your design, the increase may be only a few hundred forints compared to the amounts shown in the examples, but you should keep in mind that in the future you may expect a further increase so your payday may increase significantly.