Which borrowers did the help?

Over the past year, the Monetary Policy Council lowered interest rates by a total of 225 basis points. Although interest rates on loans should change in the same way, installments have fallen to the greatest extent for those in debt for a long time,

while in the amount of interest to pay the most benefited people who chose a relatively short repayment period. All because the size of changes in the loan installment and interest depends on the loan period.

The interest rate on most loans

bank

Consists of a margin and a reference rate, which is usually 3-month Wibor. Since its last maximum in July 2012, the Wibor rate has dropped from 5.14% to 2.70%. The interest rate on the loan should also fall to the same extent regardless of the repayment period or the amount borrowed.

However, if we compare the scale of changes in loan installments, the differences are no longer the same and depend just on the selected mortgage repayment period.

The loans taken out in July 2010 in the same amount, but with different repayment periods, i.e. 15, 25 and 35 years, were analyzed. It should be emphasized that regardless of the level of interest and its changes in later periods, the most favorable option from the point of view of costs is the shortest repayment period. Then the number of interest is lower than for longer loan periods.

Longer repayment period, even lower installment 

Longer repayment period, even lower installment 

Let’s analyze, however, how the loan installments changed when the loan interest rate changed. The loan installments reached their maximum in July 2012 and since then they began to decline. However, the scale of these falls varies and is the largest for the longest repayment period.

Persons who took out a loan for 35 years in July 2010 in August 2013 pay a capital and interest installment lower by almost 25 percent than that paid in July 2012. For those in debt for 15 years, the scale of changes is smaller. Loan installments fell “just” just over 12 percent during the year.

The amount of the principal and interest installment for the loan in the amount of 250 thousand. PLN, margin of 1.5 pp in the case of different loan periods

Comparing the changes only in capital and interest installments, it can be said that the biggest winners of the MPC decisions are people who have borrowed for 35 years. However, this can only be a “Pyrrhic victory”. It is worth noting how much the interest cost of the loan has changed during this time, and how much less interest we pay in each installment. In this case, the winners are “short-term” borrowers.

It was the people who indebted

It was the people who indebted

Themselves for a short period gained the most, as the decrease in interest paid was the largest. If the loan is repaid within 15 years, then as a result of the MPC decision, the interest installment fell by more than 40 percent. On the other hand, repayment of the loan over 35 years means that the amount of interest paid has dropped by just over 37 percent.

Therefore, what results from such large differences and such different effects of the MPC decision on capital and interest installments and interest installments. The key to the answer remains the loan repayment period and the resulting interest installment in the total amount repaid.

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