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Floating rate mortgage lenders have been warned



  • The National Bank of Hungary decided on a one-time tightening, but for the time being it is not about to start an interest rate raising cycle.
  • In the longer term, be cautious, market interest rates may rise, and this may result in a higher installment on existing floating rate loans.
  • Interest rate risk, on the other hand, can be eliminated by replacing floating rate loans with fixed rates.
  • Before any borrowing, it must be considered and not exaggerated: for example, the cost of living or consumption is covered by the loan.

The Bank of Hungary changed interest rates after several years. On Tuesday, the so-called overnight deposit rate was raised from -0.15 percent to -0.05 percent. The central bank’s decision is a minimum tightening, but the MNB has stressed that this is a one-off step, with no interest rate hike yet.

Long-term impact of a possible interest rate increase

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The MNB’s decision on retail loans is more important for the longer term , because it draws attention to interest rate risk . According to the example, in the case of a home loan with a current principal amount of HUF 8 million and 15 years remaining to maturity and an increase of interest from 3% to 5%, the repayment installment may increase from 55,000 to 63,000. On the other hand, the loan would have to be repaid with a total of HUF 11.4 million instead of HUF 9.94 million.

The solution to a possible rise in interest rates

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It is possible to guard against possible higher interest rates. Households repaying variable rate loans should consider converting the loan to a fixed rate with the help of experts.

This is especially worthwhile as long as market interest rates are low and at least half of the duration of the home loan remains. In the case of fixed-rate loans, there is no interest rate risk , and in the event of a subsequent increase in interest rates, their repayment schedule does not change. This makes them much safer, more predictable than floating rate schemes.

Emphasized that before a loan is taken out

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Good Finance’s expert also emphasized that before a loan is taken out, it must always be carefully considered, no matter what the loan is. “A household should only be indebted for several years in advance if they really need another home or to finance a major investment through a personal loan,” said Erika.

It should not be an exaggeration , for example, to cover living expenses or consumption. It is important, according to Good Finance’s expert, to carefully consider banks ‘offerings when considering borrowing, as there may be very significant differences between banks’ offerings in all designs, especially home loans.

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