A credit moratorium is a life-saving for many, as anyone who has lost their job or whose income has drastically decreased may not be able to pay off their loans for many months.
Although the terms and consequences of a credit moratorium may be known from the start, many will only understand when they leave the moratorium and receive from their bank the amount that they will have to pay off their loan. Norbert Fulop, Bankmonitor’s financial expert, helped the benchmark collect how much of that.
What is credit deferral?
Under all credit and rental agreements disbursed under the credit moratorium until March 18, 2020, debtors are temporarily exempt from repaying the principal, interest and fees associated with the loan. In this way
They do not have to pay a single penny unless they themselves decide to pay it more.
This means that if someone applies for a loan before March 18, 2020, but the disbursement is delayed until the next day, the option is not covered, and they will have to pay it back anyway.
Thus, the credit freeze began on March 18, 2020 and was supposed to last for the first time until December 31, 2020, but due to the prolonged coronavirus epidemic, the government extended it until June 30, 2021.
The interesting thing about the moratorium is that it is automatic, which means that the debtor has to explicitly notify their bank if they want to continue paying. Leaving and entering into the endowment is not a final decision. The debtor has a choice of both options at any time during the stay, depending on what his current life situation allows.
How far does the term “average” extend?
An important expectation of Magyar Nemzeti was that the loan moratorium should not increase the moratorium outcome. This means that if a person pays, for example, 75,000 HUF per month for a fixed-rate home loan until the end of the term, the amount should remain the same even after the moratorium.
It was also clear from the start that the moratorium does not constitute a waiver of credit or interest, it is merely a matter of introducing a deferral, and the interest accrued during the suspension will be divided equally among the rest of the stabilizers. The latter is very important because in this way the accumulated interest is not capitalized, that is, the banks no longer charge interest, that is, there is no interest.
Since there are important expectations regarding payment deferment that the monthly payment cannot be increased after the due date due to the suspension, the loan term in question will be slightly extended.
The longer the duration, the greater its impact and importance
- Interest on the loan (if the interest rate is higher, more interest will be accrued);
- And also when the loan was obtained, since the interest rate within the monthly installments is higher in the initial period – this is not a banking trick, but it can be accomplished so that the monthly payment can be the same every month;
- And it doesn’t matter how long a particular loan has been on hold, as many quit immediately after their financial situation stabilized, while others counted to take advantage of the 15 months available.
Bankmonitor’s expert also gives an example: if the principal debt owed for a housing loan is 10 million HUF at the time of entering the moratorium, the remaining term is 180 months, and the interest rate is 4.5 percent (which can be taken as an average), then the term is 15 months due to a total of 26 Months, i.e. 11 plus installments.
In the case of the loan in our example, this extension means a total surplus of approximately 800,000 HUF in the total repayment, that is, the amount that must be repaid to the bank during the entire term.
Who won and who lost with deferred credit?
Credit halting is an unprecedented measure in Hungarian financial history, as the trajectory of previous crises looked very different. Without the moratorium, many of those who lost their jobs or who had a significant drop in income would probably not be able to repay their loans, which could ultimately lead to the bank’s termination of the contract and thus the loss of the guarantee. From this point of view
The benefit of the moratorium is indisputable.
The fact that the banks will ultimately have to pay the interest accruing during the moratorium period precisely serves the purpose of not being able to benefit from the scheme, as the moratorium actually represents a significant financial loss to the banking sector. In order for banks not to “win” either, the interest accrued during suspension will no longer carry interest, which is certainly a fair solution, according to Norbert Follube.
Can the term delay be avoided?
The debtor has the option to prepay or repay the loan at any time, during and after the deferment period. However, in this case, it is expected that the repayment amount will first reduce the interest accrued under the moratorium, and only if it is already exhausted can the principal debt shrink. This is true, of course, even if someone only turns their savings from a real estate savings bank into a home-purchase loan.
If a person makes a payment under the moratorium, this can reduce the interest accrued and thus reduce, and even cancel, the extension of the term caused by the moratorium.
By the way, prepayment or final repayment can be the right financial decision in all cases where we can do without the available amount of money, or there is no investment opportunity that would bring us more returns in the long term than the interest paid on the loan. It is important to know that for a small amount of prepayment, when the paid money reduces interest only, the available financial benefit will be less. After all, the interest accrued no longer carries interest so it’s almost as if we were paying off an interest-free loan early on.