They are not fighting for the more secure, fixed rate mortgage loans offered by the Honest Bank and banks in a joint program for the most risky, floating rate loan customers. Very few people are afraid that the installment may reoccur.
Repayment tranche of these loans will increase
In recent weeks, banks have sent the first letters of fixation to tens of thousands of creditors. Banks ask customers that the Good Finance Bank of Hungary is afraid of interest rate risk from floating rate loans, which account for about sixty percent of the existing retail loan portfolio, and more specifically that the repayment tranche of these loans will increase dramatically due to changing interest rates which households will not be able to bear. With more than 160,000 customers affected, banks and the Honest bank have launched a joint campaign to raise awareness of the risk.
In 2019, a clientele with a maturity of at least 15 years shall be notified in 2 steps. The second phase will end in October, before all affected customers will be notified. The remaining customers will be constantly contacted by banks in the coming years.
Customers, of course, were enriched not only with information but also with an opportunity. The letter allows you to switch to a more secured payday loan with a predominantly 5 or 10-year interest rate from a previous 3-to-6-month or 1-year interest rate with a simple contract modification. According to Good Finance , this is a huge advantage over other loan redemption methods, as if you want to replace your loan, you can use a personal loan or home loan, but you also have to undergo a credit assessment, which can be long and hundreds of thousands of forints. Fixing, however, requires only one contract modification, with a maximum of one contract modification fee.
It doesn’t matter security
Good Finance, on the other hand, learned from banks that, despite the generous offer to fix interest rates, there was hardly any customer who had taken the opportunity.
Almost every bank has reported that out of hundreds or even thousands of customers it earned, it was only a few dozen who took the opportunity to switch to a more secured payday loan.
Customers paying floating rate loans have seen their installment repayments decline every three months
“We find that the current interest rate environment does not really motivate customers, with only half a dozen of the customers being notified so far who have indicated their intention to change,” a financial institution told Good Finance, which highlights what is really blocking it. the spread of secured payday loans. In recent years, customers paying floating rate loans have seen their installment repayments decline every three months. The benchmark interest rates have been on the floor for years and have been followed by the interest rates on these loans, making these loans increasingly cheaper.
In contrast, security comes at a price. Initially, fixed-rate loans are more expensive, with larger installments up to tens of thousands higher. It is clear that this is an unacceptable financial burden for many families. But even if they can pay off the increased repayment, the majority of short-term customers ask themselves, “what would I pay more when the interest rate hike is not known, and as much as the mortgage loan repayment rate falls,” says Good Finance expert, Patrik Veres.
But how much is that? Last year, the average mortgage rate on loans for up to one year was 3.25 percent, according to the Honest bank. For a $ 15 million 10-year loan, it’s about $ 145,000 in installments. The value of over-one year fixed-rate loans was 5.04 percent in 2018, which corresponds to 157-158,000 HUF installments for similar loans.
However, looking at current offers and the actual conditions of banks, we can get a much better view of fixed loans: with a 5 year interest rate, the total loan rate can be up to 3.5 percent with $ 147,000 installments, and over 10 years with up to 4 percent $ 1,000 in installments. Compared to this, the APR of the most favorable floating rate loans starts at just under 3 percent, with a $ 142,000 installment.
All of this means that at a hyper-cheap rate, customers can now fix interest rates for up to 10 years, and it is very thoughtful to take advantage of the opportunities offered by banks. According to Patrik Veres, the current yield environment provides a very good opportunity for customers to fix their loan installments on a long-term basis with low installments.
Fortunately, nothing is lost if we do not take the opportunity now. The Honest bank plans that banks will offer their customers the opportunity to change their contract annually, and at what interest rates will it be available in the future?
About Good Finance
For almost three years, Good Finance has been helping the public to be fully satisfied with their financial decisions in the long term. We can compare the most important banking products with the calculators of the specialized portal, and the analyzes and entries on the page help to inform the financial world, making an informed and appropriate decision in the given financial situation.