Fortunately, current mortgages and other mortgages have already been linked to a reference rate, which means adjusting interest rates to an external rate independent of banks. The bank specifies what it premiums on the interest on the loans and what the premium is on for the variable.

The most common reference rate is the interest rate on the Goodbank market, the so-called BUBOR. This rate is strongly related to the central bank base rate, now the central bank base rate is 2.1%, the 3-month BUBOR is 2.15%, the one-year 2.25%. (You can check the current BUBOR values on the MNB’s website, in the left-hand side of the main page)

## The bank tells you how much the premium is compared

For post-crisis loans, the bank tells you how much the premium is compared to this BUBOR and how often it adjusts the interest rates on the loans. This is called the interest period. If your loan is recalculated every 3 months, your monthly repayment will change quarterly if your reference interest rate changes. This is good news for a fall in the base rate, not even a slight increase.

If you choose a 3-year interest rate period, your interest rate will be fixed for the next 3 years and will only change every 3 years, regardless of the central bank base rate or BUBOR.

Many have become aware of the strain on their wallets as a result of unfavorable fluctuations in foreign currency loans. Very few people are aware of the unexpected costs of changing interest rates on forint loans.

## Emerging market country whose currency always has a higher interest rate

Hungary is an emerging market country whose currency always has a higher interest rate than developed market currencies. (I’ve written about the Balassa-Samuelson effect here). Therefore, the currently depressed Hungarian base rate can only be maintained until the euro and dollar base rates start rising from the current patient’s 0-0.15% level to a healthy 3-4% level.

(Both low and high base rates are the hallmarks of a sick economy. When a base rate is too low, they try to curb economic troubles with monetary (financial) stimulus; base rate for advanced currencies 2-3-4%.)

If the dollar again has a 3-4% base rate, we will also be forced to raise the Hungarian base rate by at least 2-3% against the dollar. That is, the Hungarian base rate will be 5-6-7%.

The current interest rate on your loan will be the same, 2-4% (more precisely a percentage point) higher. (What is the difference between percentage-percentage-point-basis-point, I have already written here: Percent-percentage-point)

A 5.5% base rate instead of 2.1% means that you will pay $ 92,000 per month instead of $ 71,000 for a 10 million 20-year loan, and you will spend more than $ 5 million more on the term under. I do not dare to say that in the last twenty years the Hungarian base rate has been above 10% more than below. Of course we hope it won’t be above 10% now, but with a twenty year loan, anything can happen. At a base rate of 10%, your monthly repayment would be 123,000.

## This is where long-term fixed-term mortgages come into play

So far, loans with interest rates of 3-5 to 10 years have been available, but now not only more banks have come out with such products than before, but fixed-term loans for 15 and 20 years have appeared.

Moreover, their pricing is not much higher than that of normal loans.

Specifically, the interest rate for loans with a fixed term of only 15-20 years is 1.08 percentage points higher than the interest rate for loans that are repriced annually at the same bank. That is, if you think the current base rate of 2.1% will not last for 15 years and will rise above 1.08%, then it is better to fix the interest rate for 15 years.

If you commit to receiving a bank transfer of $ 50,000 a month and using your credit card for at least $ 5,000 a month, you now have a fixed interest rate of 6.92% for 15 and 20 years. (Customer rating depends on pricing.)