In the new episode of the HNB Podcast we discuss interest rate risk, the differences between fixed, variable and combined interest rates and the reasons why banks are once again offering variable interest rate loans. To answer these questions, we are joined today by Ana Pisačić, an advisor in the CNB’s Consumer Protection Regulation and Financial Literacy Department, and Jelena Radosović of the Market Conduct Supervision Department.
Sections:
01:16
Interest rate risk represents the potential variability of interest rates over the repayment term of a given loan.
04:55
During the repayment term of a variable and combined interest rate loan, interest may increase, incurring a higher total loan cost for the consumer. This is particularly important in the case of long-term loans, such as housing loans, where even a small change in the interest rate can have a significant impact on the loan cost.
07:53
The most important thing is to pay attention to the type of interest rate, the variable parameter for the combined and variable interest rate, the fixed bank margin, the effective interest rate representing the actual price of the loan and the repayment term. It is also necessary to compare offers from different banks, which can be aided by the CNB Information Sheet, which includes the listed criteria.
10:13
Banks have reintroduced variable rate loans or shortened the fixed-phase period of combined rate models in order to hedge their operations against potential interest rate risk over longer funding horizons. However, it is important to stress that consumers who borrow at a variable or combined interest rate are exposed to the risk of an increase in the loan instalment, which is why it is crucial to raise their awareness that initial lower interest rates, while they may seem like a long-term advantage, also carry an inherent risk.
11:47
Before a housing loan agreement is concluded, the bank must provide the customer with a standardised form, which means that banks are required to present all information regarding the loan offer uniformly. In addition to information on interest rate risk, this form also compares the offer of variable rate loans with that of fixed rate loans, thus making it easier for the customer to decide on the independent protection against interest rate risk.
15:38
The consumer should be informed of the reason for and the consequences of the interest rate rise. The bank is legally required to notify the consumer on the amount of the new interest rate at least 15 days before this particular rate is applied, accompanying this notification with the changed amortisation schedule.
17:09
First of all, there is no need to rush; it is important that you make an informed decision. Look up the information you need in the CNB Information Sheet and study bank’s offers and conditions before making a decision.