Over the past year and a half, there has been a turnaround for home loan clients: the popularity of previously popular short-term loans has been declining, while demand for 5-10 year loans has increased dramatically. This is good news, as it shows that claimants are increasingly conscious of their choice of mortgage loans and put security first and foremost.
However, the recent positive trend is only partial: slightly more than half of mortgages are still short-term. This may be a problem because the interest rates on floating rate loans are much more affected by changes in reference rates and, as a result of any increase in interest rates, installments will also increase.
Meaning of the interest period
The interest period is the period during which the interest rate cannot change. This does not change the monthly repayment amount.
For example, if you borrow a 1-year loan, the interest rate (and thus the repayment term) may change from year to year. For a 5-year loan, the interest rate may change every 5 years. The longer the interest period, the more predictable the loan is because the less the installment can change.
The Good Finance encourages safe borrowing
In 2017, the mindset of the public about applying for credit did not change magic. We previously reported that the National Bank of Hungary (Good Finance) is encouraging mortgage debtors to modify their contracts and switch to longer-term interest rates and possibly consumer-friendly loans. Debtors with floating rate loans with at least 10 to 15 years remaining to maturity will receive a letter from the bank.
According to daily.hu, several banks have already sent letters to clients who have converted their former foreign currency loans and are currently paying back their outstanding debt at variable rates:
Consumer friendly home loan since 2017
The Good Finance has also taken further steps to make retail mortgage lending safer. Qualified Consumer Friendly Home Loans have been available in the domestic credit market since 2017, and can only be advertised by credit institutions under this name if the product has received a consumer-friendly rating from the Good Finance. This is only possible if the loan meets the requirements of the Good Finance.
In the first year and a half since its launch, around 30,000 customers have taken out consumer-friendly home loans worth about $ 344 billion.
At these banks we can apply for consumer friendly home loans
In addition, you can apply for a consumer-friendly loan not only for the purchase of real estate, but also for the purchase of more expensive or less secure loans previously taken, including forint currency loans denominated in 2015.
Short interest period vs. consumer-friendly credit: a concrete example
The interest period for this offer is 3 months so there is a risk that the installment will increase over the long term. According to the Good Finance’s calculations, for a 10 million HUF loan, a possible 3-5 percentage point increase in interest rates over a 20-year term could significantly increase the repayment installment by up to 20 percent.