Short? Long? Or maybe between the two? It is easy to get lost in the maze of interest periods when borrowing, but now we’ve collected the most important cornerstones to choose with confidence.
One of the cornerstones of successful home construction (building, buying, expanding, renovating) is choosing the right loan properly, as we are committed to it for many years to come. Careful planning is a prerequisite for the whole process.
How much is that?
It is important to know what we want and what we can do. On the basis of our monthly income and other indicators , we can easily calculate what kind of expense we can expect for a loan on this and similar calculator pages and what the real monthly repayments we can afford. Based on these, we can start looking for real estate that can later become the home of our dreams.
Pay attention to the details!
If we have thoroughly explored our financial options and have a future home or plan for an existing home, the next step is to choose the appropriate interest rate period for your loan. Above this important detail it is worth staying a bit!
Reference Interest Mortgage
This is a short-term loan type consisting of a benchmark (BUBOR) or an interest rate premium, the sum of which determines the initial interest rate.
This scheme offers a lower initial repayment, as opposed to long-term loans, but it is also important that the interest rate is “only” fixed for a maximum of 1 year. Thereafter, it can change positively and negatively every three, six, or twelve months, which affects our monthly burden. In addition, after the 5th year we can expect changes in the interest margin.
In the case of long-term loans, banks offer an initial interest rate to the client, which remains unchanged until the turn of the interest period.
Long-term mortgages typically have higher interest rates than short-term loans, but they also provide predictability that can be used to plan for years to come. It may be an ideal choice for less risk takers, as it can be claimed at fixed interest rates over 3, 5 or 10 year interest rates, or over the term.
What does the market say?
The mortgage market is evolving more dynamically in the latter direction, according to user needs, with more than half of monthly transactions already according to recent statistics.
The Qualified Consumer Friendly Home Loan launched by the National Bank of Hungary, which you can read more about here, can also be applied for at 3, 5 or 10 year interest rates. Incidentally, Erste was one of the first commercial banks in Hungary to obtain this rating, with a APR of 3.9% for 3 years, 4.0% for 5 years and 5.2% for 10 years. Their Home Loan.
Another major area for longer-term solutions is the use of a mortgage overhead. There is also a benchmark, short-term mortgage, as well as 3, 5, and 10-year interest-rate periods.
The choice is entirely up to us and the consciousness with which we plan our borrowing. For shorter periods, the type of loan tied to the reference rate may be the better type, and in the long term, the type of mortgage with the interest period. In the latter case, of course, the longer the interest period, the longer the interest rate constant.
It is important that our income and goals are in sync! Today, most banks give you all the help you need to make the best possible decision. For example, on the Erste Calculator page, you can not only make a preliminary plan for your potential mortgage, but also request a callback where the staff understandably explain the constructions in such small detail that they can become an expert in just about anyone!