Why is the economic climate affecting mortgage installments? The nominal mortgage interest rate consists of two parts – credit margin and market interest rate. The first component is usually unchanged throughout the loan period. The exceptions are periodic increase in the margin until a mortgage is established for the bank (so-called bridging insurance), or various promotions offering an exceptionally low margin for the first few years of starting the loan.
The other component, i.e. the market interest rate, is a variable part of interest. Experts from the financial comparison website Comperia.pl explain everything that may bother borrowers.
Why do mortgage installments increase and decrease?
Why are the loan installments in USD also rising? Why are currency loan installments unstable if the exchange rate does not change? Interest rates are responsible for this. As a general rule: in poor economic conditions, central banks set low interest rates. In turn, the economic boom raises interest rates. The market follows the rates set by the central bank. Market interest rates are just LABOR Credit, LANY etc. So, in general, poor economic conditions mean low installments, while good goods are higher installments.
LABOR Credit – what is it?
If the customer takes out a loan in USD, the variable part of interest rate is almost 100 percent. banks have a 3M LABOR Credit rate. LABOR Credit is the market interest rate at which financial institutions borrow the national currency on the Polish interbank market. Banks grant such loans for various periods. The 3M symbol means that the funds are borrowed for 3 months. Market interest rates change daily.
There is only one bank that is based on a six-month rate (i.e. 6M). It is the Bank for Environmental Protection. The LABOR Credit 6M rate is higher than LABOR Credit 3M by about 10 basis points (Why? It’s simple – the longer a bank can trade funds borrowed from another institution, the higher the interest rate must pay).Should you be afraid of LABOR Credit 6M?
Definitely not. The fact that BOŚ bases mortgages on a higher market rate does not mean that its products bear higher interest rates. As already mentioned, next to the LABOR Credit 6M rate, the interest rate includes a bank margin. And this is relatively low, which places Bank Jenny housing loans among the best on the market.
LANY – the equivalent of LABOR Credit in foreign currency loans
Foreign currency loans are also based on similar rates. However, they reflect the state of the economy of the country (or zone, as in the case of the USDo area) in which the currency is paid. These rates are called LANY and are calculated in London. Therefore, we have LANY GKL, taken into account in loans in Swiss francs, USD LANY (loans in dollars) or LANY USD (loans in USDos). Again – the three-month rate is by far the most popular in Poland.