When one friend of mine got married he at once started to think about the place to live. Taking into account the fact that it happened not in the capital but in a small provincial town, the prices for apartments were reasonable. That is why when the question whether to buy or to rent an apartment his choice fell on mortgage (at least it is your own flat, although it costs much more). Besides that, family income gave possibility to pay the credit.
He picked one of the biggest banks in the country, which had several branches in the town. While the acquaintances were gathering all necessary documents and looking for an apartment, their bank was bought by another foreign financial institution. The borrowers thought it could have been for better as in people’s minds it associated with lowering credit rates and service improvement.
At signing the agreement my friends noticed a note written in small letters that the rate indicated in the agreement was variable. But as they said it was too late to go back. Now the borrowers regret they didn’t do it very much. As every year the bank has the right to review the rates unilaterally. And now their credit rate has already increased more than 4 percentage points which significantly tells on their family budget.
Of course, this situation could have been avoided if before signing the agreement the bank employees had drawn the borrowers’ attention to that note or if the borrowers had been better informed and defined whether the rate was fixed.
Although it is worth noting that it is quite a loyal rate review system. As in some financial institutions they change rates every six months, or even every three months.
At present more and more banks are giving variable rate credits for it gives them an opportunity to insure the risks. Variable rate means that a certain part of interest rate is fixed at particular level, and the other part is set at the level of a definite money cost indicator. In foreign currency rate is attached to LIBOR (London Interbank Offered Rate) – it is a rate set on London interbank market. In hryvnyas since the end of 2007 there is another fixed index – KievPrime. This rate if formed on the basis of interest rates offered on the interbank credit and deposit market by eight big banks. Though it is used in rather limited ways. Giving variable rate credits in hryvnyas a bank, as a rule, just noted that it had the right to change the rates depending on changes in deposit with fixed period rates for the specified time.
If in Europe variable rate credits are very popular (borrowers save a lot as credit use rate might decrease), in our conditions it will not happen soon. Now the borrowers who received fixed rate credits are in better conditions than those who still agreed or became tempted by credits with lower but variable rate.
Such credits can be recommended only for those people who are confident in their future as they take the loan for a long term. Variable rate will help save at stable macroeconomic situation, but you always have to be ready for credit service cost growth in case it gets worse.
At present many banks are offering credit refinancing services. It means if you have already taken a variable rate credit it can always be refinanced into a fixed rate loan in the same or another financial establishment. Although we cannot guarantee you will win from that. As credit refinancing is also connected with bank commission charges. Besides that, refinancing rate is set in accordance with market conditions, and it is not always lower than variable one. That’s why before making a decision to refinance your credit try to take into account all factors. Good luck to you with that!
