Interest rates on mortgages in Slovakia are the lowest in history. Currently, most people can get a mortgage with interest from 1 to 1.5% pa But what happens if interest on your mortgage grows to 3% pa? How much does the monthly installment grow?
Why am I thinking about it? A few weeks back, I missed an email from one Czech mortgage comparison. In the text of the mail was mentioned interest on mortgage 3% pa
I wasn’t surprised. At the moment I have a 1.2% interest on my mortgage and if it would rise to 3% pa, the monthly payment of € 156.9 would increase. It’s a pretty decent difference.
Slovak mortgages are much cheaper than Czech mortgages
When I got the basic data into the mortgage comparison, I got this output. They are interested on a mortgage of 2.4 mil. CZK and 80% LTV.
What do you say? In Slovakia, we have forgotten that interest on mortgages can be higher than 3% pa Our neighbors in Bohemia have interest on mortgages much higher than ours. It even seems that interest can go even higher.
I will not discuss in detail the reasons why this is the case. At this point, I do not consider it essential. What is important is that it cannot be ruled out that they can look like interest in Slovakia.
Why am I writing about it? Imagine that interest on your mortgage would grow to 3% pa Want to know what would happen? How much would the monthly payment increase?
How much does the monthly installment pay on your mortgage when interest increases to 3% pa?
I’ll show it on specific calculations. It will probably be the easiest. For simplicity, I only count with a maturity of 30 years. The difference will be at any mortgage maturity, but it will be different numbers.
What if the interest on the mortgage was 5% pa as it was less than 10 years back? Those numbers would look even worse. I had even more interest on my first mortgage. It was automatically transferred to the amount of interest paid and the higher monthly installment.
How can you prepare to raise interest rates?
I don’t know what interest will be on mortgages for a year, three, or five. Perhaps interest rates will be low for a long time, and we may see interest rates rise over the years. Anyway, it is good to prepare for any scenario.
What can you do?
- Negotiate your interest on an existing mortgage and fix it for as long as possible.
In most banks it is now possible to negotiate interest beyond the fixation period of 1.2 to 1.5% pa for 5 years of fixation. If this is not the case, you can go to another bank with a mortgage, where you will even be reimbursed for the early repayment of the old mortgage.
- Make a provision for repayment of the mortgage or a provision for its early repayment.
Postpone at least the difference between the current installment and the higher interest rate mortgage. If you can postpone more, you can create capital to repay the mortgage early. If the repayment of the mortgage is not profitable or the monthly installment is not increased, you can use the money for whatever you want or you can further appreciate it.