When taking out a home loan, you have to think very hard about applying for a fixed rate or variable rate loan for a longer period of time. Experience shows that a large majority of Hungarians voted in favor of fixed payday loans. Because our monthly payment is predictable and we feel secure.
There are differences in the pattern of borrowing, with some countries opting for fixed and some variable rates, and countries where no fixed rate loans exist at all. Is it really worth paying up to millions more in interest costs for security reasons? Is a fixed rate loan at all expensive?
We present the difference in interest rates.
When buying a home, only a few can pay the price of the property in cp. The majority of the population finances the purchase of their new home through credit. Taking out a home purchase loan will determine the entire familyâs economic life for a long time! Depending on the term, how long we pay in half can take up to twenty years for a larger loan.
Interest rates are currently extremely low and house prices are continuing to rise, so this is a favorable time for home buyers.
- Fixed-rate debt repayers may represent a predictable, up-to-life expense, higher than variable-rate loans.
- interest rates on floating rate loans are currently lower, and if interest rates do not rise quickly, we can save millions if we choose to do so.
But there is a significant risk of changing the interest rate on loans with a fixed interest rate of 3, 6 or even 12 months.
Fixed rate loans are attractive for security reasons, but anyone who chooses variable rate loans and can repay them in the short term is not to be despised.
The Good Finance of Hungary also gives priority to security, with the creation of stability and, since the introduction of the Income-to-repayment installment index (GFI, has encouraged the population to take out fixed rate loans!
In Hungary, the most significant amount of new loans comes from fixed payday loans.
In other countries the line-up is quite different:
- Ireland and Poland are barely present in the retail loan portfolio with fixed rate loans at 5-10%.
- Over 70 years Belgium, 70% Germany, 35% Spain, 35% Romania, 10% and 8% in Hungary feel this is the case.
- 5-10 Year fixed payday loans in the Netherlands 55%, Germans 33%, Hungary 32%, Czech Republic 30%, Belgium 15%, Sweden 8%, Romania 5%.
- Variable rate loans Finland 90%, Poland 95%, Ireland45%.
- 1-5 year fixed rate loans in Ireland 60%, Denmark 50%, Hungary 45%, Czech Republic 42%, Romania15%, Netherlands, Germany and Belgium 5-12% respectively.
Currently in Hungary interest rate fixation between 1 and 5 years is popular.
When borrowing, we may decide that
- 3 months
- 6 months
- 12 months
- 3 years (no longer typical)
- 5 years
- 10 years
- 15 years
- 20 years (even less so today) we take out our credit.
The interest period is extremely important because the interest rate and the repayment period will certainly not change during this period.
In the case of a 3-month loan, our interest rate may change every three months and, of course, it will increase as it can hardly go any further.
Changes in interest rates over the past 6 years show how much interest an interest rate can change over the life of a home loan.
The 2.5% interest rate on floating rate loans is attractive, but if the cost of the loans starts to rise, we may end up with a very bad thing: our repayments can even double.
On interest rates, the monthly repayments of the now 2.5% mortgage loan will increase to double digits by the end of the term in the next ten years.
The question remains, which type of loan should we choose: fixed or floating rate?
We investigated different cases where interest rates increased to varying degrees over time. For the sake of simplicity, we always calculated a loan amount of HUF 10 million and a term of 15 years:
Interest rates may increase to a greater extent, but they may start to fall again after some time.
We have come to the conclusion that at 5% interest rate â if we fix it all the way â our monthly repayment for 15 years will be HUF 79,079.
If our annual fixation is followed by a one percent increase in the fifth and tenth year, our repayment would increase to HUF 80,809 in year 5 and to HUF 86,178 in year 10.
If 10-year fixation is more affordable than 15-year-olds, we count on some savings that can prepay after 10 years.
In the opinion of our independent financial expert:
âSo it can be seen that, although fixed-term loans seem to be more expensive than the variable, there is only a cheaper option if interest rates do not increase, if at all, for the next 10 to 15 years. Shifting to previously considered average interest rates, or even raising interest rates by as much as 0.5 percent a year, could mean heavy millions in the total amount repaid. â
Not at all extreme, the difference between the cost of a fixed and a variable loan can be as high as 30% of the loan amount, letâs see what it can do for you!
And, overall, both the options and the interest situation, the balance sheet tends toward fixed payday loans.
Family budgets may vary, or may involve a larger amount. It is advisable to consider early repayment, whether for a single larger amount or for smaller amounts. There are banks that offer prepayment and postpay rebates, so be sure to check in advance.
If you would like to take out a home loan, are interested in your options, are interested in the new possibilities of GFIC, call our credit brokerage experts to help you make a professional decision!
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