We can’t swim – the trap of a floating home loan

In its stability report, the ABC published a forecast, which means that in the next 10 years the interest rate on floating rate housing loans could increase by almost 4 percent. With this, the payout can rise by nearly 40 percent compared to the start. This means that an initial HUF 80,000 monthly repayment of today’s $ 15,000,000 loan in a floating rate home loan can easily cost $ 112,000 in a few years’ time …

It is a mistaken belief that “now we can easily get away” and we do not have to pay the price of a floating rate home loan! If we do not consider interest risk, then in a few years, a situation similar to foreign currency lending could occur, which would not be favorable to anyone…

We have calculated how long it will be to reach a floating rate home loan and when it is loss-making

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Based on the static example, the interest rate on the floating rate loan will remain in the next 4 years (2.23%). I then examined how the repayment of the floating rate loan and the total repayment are relative to the 10-year fixed rate qualified consumer friendly loan, if in the worst case the interest rate would be 8% in the last 6 years in case of variable interest (5%) rise in interest rates).

We can see that a 5% interest rate change from the fifth year would result in a 41% increase in our original repayment installment (variable interest rate), whereas this increase would be 10.2% compared to the initially higher fixed rate repayment. The equilibrium state, when we pay exactly the same amount, is 7.55% interest rate after 4 years for our floating rate loan.

In this example, our ultimate conclusion is that we can imagine a situation where, over the next 10 years, our variable interest rate will be higher than 7.55%?

The population would fail in the stress test

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The real problem at the moment is that a significant proportion of borrowers do not choose strategic housing for a floating interest rate, but for a material constraint (as in the case of foreign currency loans). This means that most of them cut into the lower repayment loan because they can only get the amount they consider necessary.

The ABC’s survey reveals a serious liquidity problem for the population, 65% of whom would be lost in the fourth month when no family member is looking for money and unemployment. Of course, far-reaching conclusions may not be drawn from this, as it may well be that they would fulfill their credit even at a lower standard of living…

Yet almost half of the borrowers choose a floating rate home loan

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If we look at the relevant statistics, we can see how high the rate of floating-rate home loans (new loans) is in our country, while 73% of the total (new) loans are taken out within 5 years (variable interest rate, 1-5 years fixed) interest rate). This is a very high rate in the light of the ABC’s warning that the interest rate environment may rise significantly over the next 10 years.

What is the solution? What kind of credit do we get?

The most important general solution may be to consider the repayment of a 5/10-year home loan as the starting point. If we think that besides the known risks we can benefit from the floating rate loan, we consider the known repayment of the 5/10 year fixed rate loan.

We’ll invest the difference, which is left to us from the different interest rates, in housing savings, so we double-protect ourselves:

  • if the interest on our loan increases in the case of a floating-rate home loan within 4 years, then we will cancel the housing savings and pay the fee for the loan repayment
  • If the interest rate increases unacceptably after 4 years, then we will prepay by using a 30% state subsidy on housing savings (decrease in capital and proportional monthly installments) and the monthly premium saved in the housing deposit will be our moving repayment framework, from which we can finance the increase
  • if we are right and do not rise in an unattractive housing loan with variable interest rates, then we can pay for the apartment savings (or more) and thus be able to prepay and repay.

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