Competition in the Fixed Rate Mortgage Market

Tabor, a loan expert at the blog, wrote in a new article this time about reducing interest rates on fixed-rate loans. While short-term home loans faithfully followed the cuts in the base rate, fixed rates for five to ten years did not rush down accordingly. Finally, something has moved in the market and longer-term interest rates have started to fall.

Follow his writing. (What I think was pretty good anyway, I told him he was starting to get in. ? What’s interesting about writing down the prepayment is that you can lose more by just putting in a home savings than you did in a home savings total. especially if you don’t want to pay off your home loan for 10-20 years.)

 

Interest rates on loans with a benchmark interest rate

Interest rates on loans with a benchmark interest rate

It falls from month to month thanks to a reduction in the base rate, fixed interest rates for the best 10, 15 and 20 years have remained unchanged for more than a year. The pricing of the best five-year and three-year loans has long been in a very narrow range.

There is nothing surprising about the above statement. There is no correlation between the development of the central bank base rate and the banks’ funding costs of 3,5,10,15 and 20 years. However, the lack of sufficiently intense competition also seems to have played a major role in freezing the pricing of these credit products.

For a long time, a single bank offered an interest period of more than 5 years. Today, 7 banks offer such credit products. And the number of people seeking fixed-rate financing is growing, even when the best available variable-rate loan is below 3%.

 

The pricing of fixed-rate loans has also started to decline

The pricing of fixed-rate loans has also started to decline

The best mortgage rates currently available are:

  • 3 year interest rate: 4.23%
  • 5 Year Interest Rate: 4.49%
  • 5 year interest rate 10 + 10 publicly supported CSOK loans: 3%
  • 5 year interest period with home improvement discount: 4.12%
  • Fixed for 10 years (= maturity can only be 10 years): 4.79%
  • 10-year interest period (= maturity over 10 years): 5.72%
  • 15 years fixed (= maturity can only be 15 years): 5.22%
  • 20 year interest rate: 6.99% – Only one bank offers this offer and its pricing has remained unchanged for over a year

If you choose to finance only on the basis of interest and one-time costs (APR), you may get an extremely expensive solution in terms of the actual total cost of your loan. I am not referring here to the difference in interest rate and risk between different interest periods.

It is not enough to compare interest (and the simple cost of a loan) when comparing offers with the same interest period. A low-interest loan can turn into an expensive loan:

 

If ​​we do not pay off your monthly credit when you apply for a loan

monthly credit when you apply for a loan

It is now common practice for fixed-rate loans that, when applying for a loan for the entire duration of the loan, creditors receive an interest rate rebate over a certain amount on a monthly current account with the creditor bank. (If you receive a credit on your repayment account, it will mean extra revenue for the bank and reduce the risk that the financial institution will not be able to collect your monthly repayment.)

 

What happens if my credit is not honored? 

Here are some things to consider when choosing your home loan:

  • How much credit do we commit to?
  • Should you come from one account or come from multiple sources?
  • Must it come from income or can it come from another title?
  • Must it come in one sum or come in multiple batches?
  • If we lose the interest rebate, how much does the loan installment increase?
  • If and how much time can the discount be recovered? (There are cases where we lose the preferential interest permanently in the event of periodic non-compliance.)

In many cases, a premium-priced loan will be a loan that is significantly more expensive than the market average if the interest discount condition is not met!

 

If we prepay

credit repayment

There was talk on the blog that the possibility of a free home loan prepayment was eliminated. It is important to emphasize that the mandatory free repayment provided by law for all financial institutions has been abolished. There is still the option of free early repayment at certain financial institutions.

However, as of March 21, not only was the option of a prepayment free of charge but also the maximum amount of the prepayment fee increased. (Previously taken loans are subject to earlier regulations.)

There has also been an increase in the number of financial institutions where early repayment within x years is penalized by post-invoicing the costs incurred when applying for a loan. It does not matter that any prepayment of any amount will incur additional costs in addition to the prepayment fee, or will be penalized only by exceeding the limit or by repaying the entire debt.

Of course, it is best to prepay as much as you can without having to pay back the exorbitant costs, and even the prepayment itself is free. There is also such a loan offer.

To illustrate how brutally high the extra cost of a prepayment can be

here are two concrete examples:

– Within 5 years of our $ 15 million home loan disbursement, an apartment savings bank savings expires and we would like to use our savings to reduce our debt.

Prepayment fee: 1.5% of the prepaid amount: HUF 21,000

Costs for applying for a loan: HUF 225,000

= $ 246,000 – That is, for a total of $ 40,000, we gave the entire state subsidy for the LTP to our creditor bank just because we need to pay the opening fee after the home savings are repaid.

We will fully repay our $ 15 million home loan within 5 years of disbursement

Prepayment fee: 1.5% of the prepaid amount: HUF 225,000 (I did not take into account the capital repaid in the meantime)

Costs for applying for a loan: HUF 225,000 = HUF 450,000

In both cases the prepayment fee could have been 0 HUF, if another financial institution was chosen at that time.

 

If in exchange for an interest rate discount

interest rate discount

We choose an expensive insurance, bank account package that, even after deducting the interest rate discount, could have been obtained elsewhere with better services.

It’s a good idea to seek the help of a professional who knows more than just a few financial institutions and helps us find the best financing options, taking into account the terms of interest discounts and the cost of prepayment.