MonthAugust 2019

Sign a mixed mortgage loan, an unattractive option both short and long term – Nora Helmer

 

The entities ensure that with these products we will be protected for a while, but from the financial comparator Good Finance they warn that, given the current scenario, signing a mixed-rate mortgage loan is not a recommended option.

Most expensive initial fees

Most expensive initial fees

As explained by Good Finance, mixed mortgages marketed in Spain have a fixed interest of around 2% on average that is applied between the first five and 20 years. Once this initial term has elapsed, these loans have a variable rate referenced to the Euribor, with an average differential of about 1% (although certain entities offer differentials of 0.99% or up to 0.85%).

Consequently, during that time we cannot benefit from the low price of the Euribor, which currently has a value of -0.19% (average of April 2018). Recall that variable mortgages have an interest of approximately 1% plus 1%, so the difference between the price of the installments of these two products is really pronounced.

Let’s look at it with an example. Imagine that we ask the bank for 150,000 euros, to be repaid in 25 years, and this gives us two possibilities: mortgages with a variable rate of Euribor plus 1% (with an initial fixed of 2% the first year) or to contract a mixed interest loan 2% during the first 10 years and Euribor plus 1% for the rest of the term.

As we see in the table, if the Euribor traded at an average of less than 1% during the first decade (which is the most likely scenario), the variable mortgage would always be cheaper. For example, with an average Euribor at 0.5%, with the variable rate loan, we would pay some installments of 601.19 euros, while with the mixed mortgage we would have to pay monthly payments of 635.78 euros.

Its stability expires

bank

The mixed mortgage, therefore, would only be cheaper than the variable if there were a large rise in the Euribor in the short term, in which case we would be protected by the initial fixed. However, after the period has elapsed at a fixed rate, the interest would be referenced to this index, so it should be lowered again so that the fees are not increased.

This is a carambola that is very difficult to end up giving, so from Good Finance they advise, if what you are looking for is stability, opt directly for a fixed mortgage. These products are somewhat more expensive than a year ago, but they still offer very attractive types.

Fixed Mortgage

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Two of the most prominent examples are the BBVA Fixed Mortgage, whose 20-year interest is only 1.95%, and the Bankinter Fixed Mortgage, at 2.15% at 20 years. Also interesting are some offers such as the Fixed Mortgage Mortgage.com, which despite having a somewhat higher interest (2.80% at 20 years), does not have commissions or related products, which represents a considerable saving for the holder.

Save or Invest?

The importance of saving is well known to all, especially because there are more and more financial institutions that flood us with publicity about it. Just look at the commercials about the “savers”, the “crusades of savings”, among others. While it is true, saving allows us to consolidate our assets, but to reach many of our financial goals it is necessary to go further.

In one of my articles (“The time to start is Now”) I commented on the importance of interest capitalization. As you will remember, the longer the term, the greater the final capital we obtained. However, there is another important variable in this process: the interest rate. A 6% capitalization is not the same as a 10% capitalization. This is precisely the central point: If we want the rate at which our equity is capitalized to be higher, we must be willing to face a greater risk.

This does not mean taking unnecessary risks 

money savings

To better understand this I would like to introduce two simple concepts: income and capital gain. Suppose that two years ago we bought an apartment for USD 150 thousand and we are renting it. The monthly payments we receive for the rent are called “rent,” that is, a constant and periodic flow of income. If at one point in time we decide to sell the apartment for USD 200 thousand, the difference between the purchase and sale price (USD 50 thousand) is called “capital gain.” Keep in mind that the sale price could also be lower than the purchase price (loss of capital = risk). These two elements constitute the pillars on which our heritage is built and consolidated, and in turn serves us to understand.

Difference between saving and investing

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  • Saving seeks to preserve our capital, without risking it. This type of financial asset only generates income. The classic vehicle to achieve this is a savings account or a term deposit. As we pay funds to our account, interest is capitalized and we grow our assets. However, being a low risk alternative, the return (interest rate) is also lower.
  • Investment implies taking a greater risk and allows us to generate income and capital gain (loss). This higher level of risk leads us to a higher average return. When we have ambitious goals, it is necessary to have a professional and diversified investment plan. For example, in developed countries people begin to invest for their children’s college fund since they are born. Likewise, in many places people take parallel investment plans to improve their future retirement pension.

In order for our heritage to grow over time, both elements must be used. Saving allows you liquidity and preservation, while investment generates growth and accumulation. Both are necessary in any wealth generation plan. The savings must be allocated for contingencies of our Human Capital (see “Initial situation before investing”). For example, it is known that our savings fund should cover at least 3 to 6 months of monthly income. Because a savings account is liquid, it will allow us to access our funds immediately before any contingency.

Once this part is covered

money coins

The investment process must begin. To do this we will make a brief analysis of the initial situation and take into account our medium and long term objectives (see “Let’s learn to pay our tip”). We must bear in mind that, unlike saving, investment is a much more complex process, which is why we will surely require the intervention of a financial advisor. Below I detail some of the investment vehicles that will allow us to consolidate this process.

  1. Mutual funds and non-pension funds:
    They allow us to access a diversified portfolio without the need for high investment amounts. This vehicle takes advantage of economies of scale to offer us different alternatives in assets, regions, currencies, etc. The variety of funds is wide, not only at the local level, but especially at the international level.
  2. Direct Investment:
    It is when the investor makes his investments directly through an intermediary (broker or bank). Having no economies of scale, this vehicle requires larger amounts of investment. Additionally, the person is required to have the necessary time to analyze the market options and execute the purchase / sale operations.
  3. Discretionary Administration:
    This alternative is for people or families with a medium or high heritage. It consists of delegating the administration of the assets in a professional manager, who will be in charge of structuring a customized investment portfolio. This alternative is like having your own mutual fund.
  4. Investments in the real sector:
    Purchase of real estate, own company, among others. These types of investments are high risk, insofar as they are concentrated in a single type of asset. They also require high investment amounts and specific knowledge about the sector in which we are entering. Sometimes it is better to make these investments through mutual funds or mutual funds (real estate funds, infrastructure funds, private equities), in order to diversify and reduce risk.

Remember that there is not only savings

money cash

As a vehicle to achieve our financial goals. We must begin to create a culture of heritage investment, which gives us greater alternatives and opportunities in wealth creation. However, they should always be properly advised to avoid taking unnecessary risks. Another important point is to stop thinking that our savings or investment can only be made within the country. Internationally there are greater investment options for all budgets. I invite you to get proper advice and start growing your assets!

 

Baby loan for home loan repayment

We continue our series of baby loan articles in which we answer the most common questions based on the requests we receive. Following a pattern of specific questions received, we put together a “model couple” through whom we present the terms and conditions for baby loans and other government grants.

We will look at the situation with baby support, whether it is worth replacing your existing home loan, and whether and in what form to apply.

Can they borrow a baby loan?

Can they borrow a baby loan?

According to the decree, Good Finance qualifies for a baby loan because:

  • married,
  • Erika is under 41,
  • Gábor has a 3 year continuous TB relationship,
  • they have no public debt and are not on the negative KHR list.

However, the regulation also states that creditworthiness is to be decided by banks according to their own rules . The creditworthiness of Good Finance is influenced by two factors:

  1. Do you have a minimum income required by the bank?
  2. Can they fit into their monthly income to cancel two loans at once?

We assume that 35% of their income is chargeable under the regulations effective July 2019 because the interest period for a baby loan is 5 years. 35% of their income is HUF 75,250. This way, the maximum repayment limit of $ 50,000 of the 10 million baby loan is just enough to cover the maximum amount of debt allowed, so they can take the full amount.

Is It Possible To Prepay A Home Loan From Baby Waiting Support?

Is It Possible To Prepay A Home Loan From Baby Waiting Support?

The baby loan is non-interest bearing for 5 years from the date of enrollment and only the annual guarantee fee of 0.5% is payable on the principal. So better than any current market-based home loan. So you might want to replace your home loan with your baby waiting room to get rid of the interest burden – at least for most of your home loan.

Why? Remember, with the arrival of your second child, the state will release $ 1 million from your existing home loan. It would be a pity to lose – and if the entire loan is repaid, the state will not have to spend $ 1 million.

How do I prepay my home loan from the baby room?

How do I prepay my home loan from the baby room?

Because baby loans are free to use, people spend whatever they want. You can even prepay an existing loan. In this case, the fees specified in the loan agreement are to be taken into account, which may not be more than 1% of the outstanding debt, in some cases less. It can be prepaid free of charge at 200 000 HUF per year.

Under the regulation, babysitting support is clearly also available for loan redemption. The terms and conditions of the loan redemption will be decided by the lenders previously borrowed according to their own regulations.