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Sunday, September 26, 2021

Interest rates. Inflation will hit borrowers

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Galloping inflation means that borrowers have to reckon with an increase in interest rates more and more – notes the daily Rzeczpospolita. This would mean higher debt servicing costs for them. The newspaper emphasizes that those who have become excessively indebted may have problems with financing the budget.

As the daily writes, “The Polish market stands out from other European markets, especially Western ones, in that almost all household loans have a variable interest rate, so customers are exposed to the interest rate risk.” “This applies in particular to those who are repaying housing loans, which are large and long-term liabilities”, notes Rzeczpospolita.

The interest rate hike will hit borrowers

“Let’s take, for example, a loan taken also for 25 years with a margin of 2.3 percent, but worth PLN 500 thousand. Its installment is now PLN 2240 per month, but a return of rates to 1.5 percent would mean an increase of PLN 370. 2 percentage points would mean an installment higher by PLN 540, an increase by 3 percentage points is an installment higher by PLN 830, and by 4 percentage points – by as much as PLN 1,130 “- the newspaper enumerates.

“It is also worth remembering that higher rates also mean a higher total cost of interest paid over the entire duration of the contract. Take, for example, a loan worth PLN 300,000. If interest rates were as low as now for 25 years, the total interest paid to the bank would be” only “104 ths. zloty. If, however, for the entire 25 years the rates were only 2 percentage points higher, the cost of interest would reach PLN 200,000. PLN “- the daily reports.

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The daily emphasizes that an increase in installments after raising interest rates will cause some customers to feel this in their home budgets. “A certain group may begin to have problems with timely repayment (in turn, banks would have to set up larger provisions for these debts)” – writes the newspaper.

– Initial increases will increase the installment by just a dozen or several dozen zlotys. It shouldn’t be a problem. The vast majority of borrowers would probably repay even a third higher installments without delay. This, however, would worsen their standard of living. In many cases, it would require resignation from expenses that they can afford now – comments Jarosław Sadowski, Expander’s chief analyst, quoted by the newspaper.

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