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Interest rates and the increase in loan installments – by how much will they increase? [Wyliczenia]

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The Monetary Policy Council is to make a decision on interest rates on Wednesday. Economists predict another hike – consensus is that the reference rate will rise by 0.75 percentage points to 6 percent. How will this affect loan installments? This is explained by Jarosław Sadowski from Expander Advisors.

The Monetary Policy Council raised interest rates by 75 basis points during its meeting in May. The main benchmark interest rate rose to 5.25 percent. This is the highest level since November 2008, at 5.75 percent.

Economists have no doubts that on June 8, the MPC will raise interest rates for the ninth time in a row. Many expect Wednesday rates will rise again by 75 basis points.

As a rule, MPC decisions have an impact on WIBOR, which at the same time translates into the amount of loan installments. The interest rate on loans consists of two elements: the bank’s margin and the ratio – most often WIBOR 3M or WIBOR 6M. Both these indicators already take into account likely decisions of the MPC in the future – in the next three or six months, respectively.

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NBP reference ratePAP / Maciej Zieliński

What about loan installments?

In this situation, will the Wednesday’s decision of the MPC mean higher loan installments? Today, both WIBOR 3M and 6M are at higher levels than the reference rate. Which means they already include June an increase in interest ratesor even the probability of another. So, if we had updated installments in recent days, the interest rate hike in June is already included in it.

As a rule, in the case of an increase in the reference rate by 75 basis points, the loan installment per PLN 300 thousand. PLN contracted for 25 years grows by approx. PLN 150.

At the same time, as noted by Jarosław Sadowski, the main analyst of Expander Advisors, “unfortunately, there are many indications that this is not the end and interest rates will continue to rise”, and the quotations of futures contracts suggest that in the next 6 months WIBOR 3M may increase to approx. 8 percent

In practice, therefore, we can expect that in the coming months 3M WIBOR will continue to grow gradually up to this level.

Installment simulation

The table below is a simulation prepared by Jarosław Sadowski for a loan granted in October 2021 for the amount of PLN 300,000 for 25 years. Its installment was initially PLN 1,440, at the current level of the 3M WIBOR rate, it is PLN 2,609.

Change of loan installments – scenariosExpander Advisors

If WIBOR 3M increases to 8%, the installment of the above loan would be PLN 2,930.

It is also worth remembering that banks update the calculations of installments every three months (WIBOR 3M) or every six months (WIBOR 6M), which means that a change in ratios translates into amounts paid by customers with a certain delay.

Interest rates and creditworthiness

Jarosław Sadowski also points out that the increase in interest rates means problems for people who are just planning to buy real estate with the help of a mortgage. Their availability will worsen once again, which is limited not only by the high interest rate, but also the KNF recommendation, which has been in force since April, on the method of calculating creditworthiness.

“Someone who at the beginning of October 2021 could count on a loan of PLN 400,000 with a repayment period of 25 years, will be able to count on about PLN 211,000 after the June rate hike.” the analyst calculated.

Main photo source: Shutterstock

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