A fixed rate loan is, to some extent, a lottery. Of course, those who signed a contract with him in the last two, maximum three years have won a lot, although soon after the conclusion of the contract they faced a lack of understanding of their decision from friends. “But why did you take out a loan 1/3 higher than the floating rate loan? After all, everyone takes with a variable. In recent months, the fixed-rate loan has gone through a full rehabilitation.
After a seemingly endless series of interest rate hikes, many borrowers regret not getting a fixed rate loan. Who is this regret? Some indebted people claim that they were advised by client advisors to move away from fixed interest rates, which, by showing various charts and tables, claimed that the chances of rates rising significantly were out of the question. Apparently, some sneered that something almost impossible was about to happen, like a world plague or a war in Europe.
Other borrowers deliberately base their obligations on a floating interest rate, which is cheaper than a fixed rate loan in good times. They swear that if they could turn back the clock, they would opt for a fixed rate (although it is only fixed for five to ten years, depending on the contract) and not tremble at the next meetings of the Monetary Policy Board.
Fixed-rate loan “hit” in banks
Learned from their experience, those who want to buy real estate are now willing to take loans with a fixed interest rate. In some banks, they are chosen by more than half of the customers.
Bartosz Turek, chief analyst at HRE Investments, writes in an analysis that the best time to get such a loan was in 2020-2021. “Today is clear. However, at that time it was an innovation in the Polish market, not all banks had attractive offers for these loans, and interest rate futures contracts assumed that we would use cheap loans with floating interest rates for a long time.”
Unfortunately, the following months have shown how wrong these predictions turned out to be. Even in 2021, few were willing to pay extra and take out a loan with a fixed interest rate. The interest rate on these “mortgages” was even 1/3 higher than in the case of a loan with a floating interest rate. Then this decision was chosen by a small percentage of borrowers, and today almost everyone would like to get a loan at 3-4 percent. in year.
Fixed or variable interest? It’s impossible to predict
You should be aware that choosing between a variable rate loan or a fixed rate loan is a kind of bet. Fixed-rate borrowers are likely to do well if interest rates in the coming years are higher than what the market expects today. In the case of choosing a loan with a floating interest rate, this may be a profitable solution, since the value of money in the coming years will be lower than market participants expect today, Turek explains.
When choosing a loan with a fixed interest rate, we choose to be sure that the payment will not change for some time. After the specified period, the stabilization of the installment will end, and we will have to agree on new repayment terms. We do not know whether loans will then be more expensive or cheaper, and therefore what installments we will have to deal with. And, of course, only after the end of, for example, a five-year fixed installment period, we will be able to assess whether we have used or lost by choosing a fixed installment plan.
Fixed interest as a remedy for excessive risk?
- There is no doubt that a fixed interest rate remains the best solution for people teetering on the brink of creditworthiness. Choosing such a loan, we buy peace of mind and confidence that the installment plan will not change for at least a few years. In addition, we will be able to replace our existing loan with a cheaper one when we decide in the future that this is more profitable for us. A common practice is that banks do not charge a fee for early repayment of a loan (you should pay attention to this when choosing a loan). In addition to obtaining a new (cheaper) loan, this is an integral part of the process of replacing a more expensive loan with a cheaper one, notes Bartosz Turek.
If the scenario in which the current cycle of interest rate hikes comes to an end and the value of money could begin to decline in 2023 could be lower, the cost of servicing floating rate debt. However, today no one knows exactly what the future holds, and extreme scenarios must be taken into account when managing your household budget prudently.
Fewer and fewer apartments on credit
Biuro Informacji Kredytowej (BIK) emphasizes that “there is no trace of last year’s mortgage boom”. The data provided by the institution show that after the first half of the current year, the cost of issued housing loans decreased by 25.1%.
June of this year. Compared to June last year, in numerical terms, banks and credit unions issued only more installment loans (an increase of almost 30%). On the other hand, housing loans decreased by 55.1 percent. In turn, in value terms, the cost of issued housing loans fell by as much as 52.4%, more details in the text below.
Source: Wprost
