5-10 years fixed rate loans: how do banks?

There is a so-called interest period for home loans, which shows how many months or years the loan interest rate is reviewed and adjusted to current market conditions.

Today, most foreign currency base rates, including the forint, are at historical lows. If this starts to rise, mortgage repayers will begin to rise in parallel.

Most home loans have a 3-month interest rate term

Most home loans have a 3-month interest rate term

Meaning that interest rates change or change every three months.

If interest rates are on the floor like now, it may be worthwhile to apply for loans at fixed rates for 5 or 10 years, even if they are more expensive than quarterly variable rates.

I’ve written a lot about this, for example, here.

The interesting question is, how do banks do the trick of taking fixed rates for 3-5 to 10 years, risking it for us?

Many people imagine bankers sitting on needles for 10 years and chewing their mouths hoping that they would not raise interest rates much more than they asked for a 10-year fixed loan, because then they would get huge loans.

Well, neither are they cool or stupid banks, the solution is much easier

Banks quite simply cover their risk in a very straightforward way: they issue mortgage letters to investors with a maturity of 3-5-10 years. (Of course, they can raise funds for 3-5-10 years any other way, not only with mortgage letters but also with other bonds or even interest rate swaps, but this is irrelevant now, that’s exactly how it works.)

So from here on out, not the bank, but the bond buyers, hoping to keep their interest in the next five years, and hoping to get a 2.48% annual return, will be a good idea. interest-bearing bonds.

Clicking on our loan calculator and adjusting the interest rate on the loan in the drop-down tab will see how much Good Finance in the example gives you a 6-month and a 5-year loan:

The same loan carries an interest rate of 3.67% for the six-month period and 4.65% for the five-year period. The 3-year calculator is not issued, but it is almost certain that the annual interest rate may be 4%, if the bank has such a loan, because the bank obtained the loan at a cheaper price.

Not only does Good Finance have a mortgage bank

But almost all major banks and nowhere else do things differently.

Since investors buy only bonds at a higher interest rate for a longer period of time, the longer you want to fix the interest rate, the higher the interest rate the bank will charge you.

It’s so simple to operate, there’s no other trick behind the longer interest period.

If this article is about this, I used to polish a blog credit expert, so now I’m going to make sure I don’t forget about my loyal advertiser. ?