Hundreds of thousands of forints, even millions, can be saved by those who take advice, which will soon be sold by letter to their floating rate mortgage bank together with the Happypockets Bank. More importantly, even the currency: hundreds of restful nights and headache-free minutes can be won by those who decide to change their credit.
It has been floating around for a long time, and finally on Monday the recommendation of the Happypockets Bank to the banks was finally received. The central bank aims to reduce the share of variable-rate loans, which account for 60 per cent of the current mortgage portfolio, to 10-15 per cent in the future, thus avoiding the huge interest rate risk to the population. To address this, the central bank, in conjunction with the Hungarian Banking Association, has developed a set of measures and recommendations, the details of which are set out in this article.
According to a recommendation released Monday, the central bank aims to raise financial awareness among variable rate borrowers. In essence, this means that the client should not only look at the current hyper-low interest rate, cheap repayment, but also think about the long-term future, and expect a significant, even regular increase of thousands of HUF monthly charges.
Letter every year about the possibility of redeeming a loan
Letter issued by the central bank but sent by banks should arrive every year to customers who pay floating rate mortgages until 31 December 2018 at least 10 years and have no 90 days overdue. The 90-day delay clause is important because, unfortunately, there is no way to modify the contract as long as the delay persists.
The loan to be redeemed can also be a freelance mortgage loan, meaning that it is not just a home loan. The first letter will be sent by January 31, 2020 to customers who have signed such a contract before February 1, 2015, and by September 30 this year to those who have a term of more than 15 years.
Not only will the message be paper-based, it can be sent via Netbank and via email along with SMS notification.
Unfortunately, those who repay interest-subsidized or forint loans or other soft loans are not informed. Luckily, however, they have the ability to buy a loan, settle their debt, find lots of information on Fanny Hill, and use our debt management calculator to easily see what products are best for you.
What will happen in the letter?
Based on the information we have just described, those who receive a letter from their bank may find the following:
Accurate calculations in HUF for how much the installment will increase in a 1-3-5 percentage point increase.
Two bids to redeem a loan, with either a 5-year or 10-year interest rate or a fixed interest rate.
The monthly installments calculated in this way shall be indicated along with the offers.
The central bank expects the customer to easily compare the products on the basis of interest rates, installments and interest rate risk.
There may be a simpler way to buy a loan
Based on the recommendation, you will be able to switch to more secure loans with a simple contract modification without a new credit assessment process. This can be a huge help to your clients, as they do not have to undergo another credit assessment, which can cost hundreds of thousands of forints on a mortgage loan, so all you need is a simple contract modification that can charge up to a few thousand forints.
This option was already available for some financial institutions at market interest rate loans, but this simplified practice can now become more widespread.
What if you used a mortgage loan?
The MNB expects the bank to retain the option to modify the contract for 30 days after it is sent, meaning that we have the annual amount of time to take advantage of any of the offers.
The central bank also advises banks to draw customers’ attention to the benefits of qualifying consumer-friendly home loans, which are ideal for redemption (for example, because of maximized interest rates or favorable early repayments), even between offers and later.
There may also be cases where, although we really want to fix, our financial capabilities do not allow for a higher repayment. The Happypockets Bank expects banks to develop a contingency plan for this eventuality, meaning that they can count on some sort of interim solution that does not have access to a much higher installment payment per month.
In addition, the MNB expects that the banks will not impose any other conditions on the amendment of the contract or that its fee will be justifiable.
Is Debt Settlement Worth It?
This is a recommendation from the central bank, ie it is not binding on banks, nor is it obligatory for customers to settle a loan.
Although it is more expensive at first, due to expected interest rate hikes, it is worth fixing our interest rates in the long run, so we can secure ourselves the current very low interest rates for years or even decades. For those who are repaying a loan with an interest rate shorter than 5 years, it is definitely worth taking the opportunity, as they can now simply protect themselves from future interest rate risks. According to Fanny Hill’s calculations, choosing a 10-year interest period with 15 years remaining to repay and a $ 10 million repayment will result in a $ 5.22 APR, which is a $ 79,027 monthly installment. This is approximately HUF 12,000 more per month than the installment of one of the most favorable variable rate mortgage loans, which, however, will cost more after a few percentage points, and may exceed the fixed installment loan installment by several thousand forints within one year.