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The value of the present
According to the central bank, the advantage of the moratorium lies, among other things, in the fact that a current obligation, that is, the repayment of the loan, can be postponed in the future, so that its cost will only be owed in the future . Simply put, the amount we don’t have to spend to pay off a loan now, but can spend on anything, is worth more than the cost we have to pay for all of that in the future. This is useful if we need money urgently now, because we do not have a job, and we assume that we will get out of trouble in the future and it will be easier to repay the amount we just spent and the corresponding interest.
The credit moratorium is not free
- Interest must be paid on the principal debt
- The monthly fee cannot be increased
- Therefore, the term will be extended
The credit default was a pivotal point in the March action plan for economic protection: the public and businesses were spared the hassle of repaying the loan before the end of the year. The reason is that so you don’t have to worry about losing your home or property during the epidemic. This was definitely an important, almost loving step, as the closure of the country pushed entire sectors to the brink of company and employee ruin. Approximately half of the population lived with the moratorium, many of them presumably more because it was automatic, they had to ask to leave. They are not doing well now.
The rules were designed by the government so that banks could not charge interest on the amount accumulated – not paid – during the moratorium.
However, this does not mean that the moratorium has no cost.
This is because the debt necessarily accrues interest; This is exactly the essence of loans. The bank charges the fixed interest and the longer the term, the higher the interest burden. Therefore, it may not be worth choosing the lowest possible installment for a loan agreement, but this is a different story that will be told at another time.
There is no such thing as a free lunch
The situation, then, is that the credit default cost everyone who used it money. That is why it is very necessary to think about whether it is really necessary for a family or household to also maintain the moratorium in 2021.
If someone is in default simply because of inattention, or if they think it’s nice not to have fattened the bank for a while, they will definitely get worse in the end.
Of course, if someone has lost their job, their livelihood, and could not pay their credit in any way, the moratorium is good, because while it lasts, they cannot be left behind. You have the time and the opportunity to find a solution.
Let’s look at three basic situations!
The starting point in all cases is that the family’s livelihood was not in danger, we simply did not get out of the moratorium. And the question is how much will everything cost at the end of the day. Two parameters matter: the interest rate on the loan and the outstanding principal debt. During the term of the moratorium, interest must be paid on the outstanding principal debt.
In the first case, we look at a home loan, in the second case, a free-to-use home loan, and in the third case, we look at a personal loan.
The three types of loans generally mean different loan amounts and different interest rates. For the calculation, we use a default calculator, which allows anyone to calculate the development of their own credit.
According to the MNB, the average interest rate on mortgage loans was 4.01 percent in March, so we have this; In principle, the interest rate must be taken into account when the loan contract was signed, but it cannot be reproduced. If there is still 8 million HUF of mortgage loan principal debt remaining, 252,000 HUF of interest has accrued during the moratorium.
In the case of a debt of 10 million guilders, this amount is 315 thousand guilders.
Free-use mortgages have higher interest rates than home loans and are generally lower in amount. The average interest rate in March was 5.84 percent. In addition to the outstanding debt of HUF 5 million, during the moratorium, interest expenses of HUF 230,000 will be incurred and, in the case of HUF 3 million, HUF 138,000.
Unsecured personal loans have the highest interest rates. The average rate in March was 12.14 percent. Here, the amount of credit is orders of magnitude lower than that of mortgages, precisely because these quick access loans are expensive. In the case of a capital debt of HUF 3 million, interest of HUF 286,000 will accrue during the moratorium and, in the case of a debt of HUF 1 million, HUF 95,000. It really seems here that the moratorium is costing a lot.
Why does the MNB say it won’t cost more?
The construction has been designed in such a way that the quota cannot increase after the moratorium; this is not true anyway, but we will come back to this. Interest accrued under the moratorium must be paid in such a way that the banks extend the term of the loan. That is, the amounts in our example are added to debt and then spread out over any month with an unchanged monthly payment. How much depends on the accrued interest and the amount of the monthly fee. Realistically, it could be a few months.
This means that, in the end, delinquent loans will have to be repaid twice as long. On the one hand, the term is extended, and on the other hand, the closing is delayed nine months of the moratorium. So in general
Forbearance loans must be repaid for at least one year.
compared to what was included in the loan agreement, of which nine months is the moratorium itself. If someone falls into default just because they didn’t have it, they may be in for a big surprise after they get their next credit report.
How can the installer grow once it cannot grow?
As a result of the moratorium, there will certainly not be an increase in the refund, unless someone specifically requests it. It makes sense if it is important that the loan is exhausted as soon as possible and the debtor assumes a larger repayment to shorten the term. But the loan repayment amount can be affected not only by the default. In the case of variable rate loans, interest rates may have risen during the default, and this will be reflected in the January installment for the first time.
(Cover Image: Index)
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