An interesting phenomenon is unfolding in home loans. In many cases, interest-subsidized loans are more expensive than market offers from the same bank. Should we choose a lower installment or a higher security?
For example, at Katharina Bank you can get a home loan with a starting installment of 51 thousand forints, while under the same conditions you have to pay 55 thousand for a month if you choose the interest-subsidized version. Similar differences may exist in any bank, but what should we decide between the two constructions?
In the case of interest-subsidized loans, there is a lower threshold beyond which there is no State aid. This line, drawn at 6 percent, is a watershed, because if it goes under the market loans, it is no longer worth choosing a subsidized construction. Unless for the security these constructions provide against possible interest rate hikes.
But is it worth paying $ 4,000 a month?
If there is a big interest rate increase, of course, but the National Bank of Hungary does not intend to increase the base rate for one and a half years, which indirectly determines the cost of loans. If we trust them, we will be less willing to pay more to the bank to avoid being so afraid of interest rate increases for 5 years.
Namely, interest-subsidized loans will not be more expensive in the first 5 years even if market interest rates start to rise. Namely, if interest rates were above 6 percent, then there would be state subsidies and we would get away with the extra costs.
The question, then, is whether we believe that interest rates will rise in the first 5 years of the term, which is why it is worth paying a higher installment now.
How do we decide?
- If the bank’s personal offerings are cheaper than interest-rate subsidies, we should clearly choose it.
- The longer the term of the loan, the more worthwhile the interest-subsidized construction is, since the principal is slower to decrease and the interest may be higher.
- For the same reason, in the case of shorter maturities, we can easily choose market designs with a shorter interest period.
- If market credit is significantly cheaper, so choose it, then try to prepare for interest rate increases. Let’s set it aside. The best way to do this is to save a home.