Now that you can get a flat-rate mortgage for up to 10 years at a reasonably high salary at up to 3.02% per annum, or at a lower interest rate for a shorter interest period, the question is often whether you would not be better off pay off the outstanding loan even if you have the required amount or cash to buy the property.
The questioners see what returns can be made on the capital market, or even in a secure premium government bond.
Is it worth the debt even though we already have the loan? Do We Get Something Between Lower Loan Interest and Savings Yield? It is tempting to invest other money for our own benefit at a 3% interest rate.
Before we go into this, let’s do some basic things.
The first thing most people don’t expect is the risk.
One of these risks is the risk of changing the interest rate on the loan. If the now 2.5% interest rate element becomes only 4-5% interest rate due to changing circumstances, my stunt can quickly pay off. Just to remind you, in 2012, the average interest rate on home loans was 14%. There is no reason why the average interest rate should not be the same again in 5 years. Not long ago, it happened twice in five years that the base rate of the forint jumped 3 percentage points overnight.
Therefore, such a trick should only start with a fixed rate loan until the end of the term. Banks have been offering fixed-rate loans for 20 years, though its interest rates are far from attractive.
The other thing is that I can’t compare the performance of the American stock exchange over the past three years with the past three years of interest on the loan element.
The US and any other stock market can collapse at any time
The exchange rate reached in 2000 was restored in 2007 by the US stock exchange for a short time, and then, in April 2013, returned to where it started 13 years ago, thanks to the next crisis.
Think about it, if you had invested money on the American stock market with money from a loan for which you have to pay interest. In 13 years, all you would have gained was to get your capital back to zero while paying a lot of interest on your loan each year. You would have lost a lot because of the difference between the interest paid and the dividend you received.
And we haven’t even talked about currency risk. The dollar was above $ 310 in 2000, and by 2008 it had fallen below $ 158. You would have doubled down on a US dollar listed investment.
So it would be a great irresponsibility to buy money from a loan, but to buy an investment fund, no matter how risky.
Therefore, only forint-based, risk-free investment is possible. Currently there are two eligible products: premium and bonus Hungarian government bonds, inflation plus 1.4% and one-year government bond plus 2-3% interest. If the official inflation rate is above 2%, you will gain a little of the difference, and with the 10-year bonus government bond, the one-year government bond yield will be your profit. But it’s also gross, since you also have to pay 15% interest tax if you bought government securities on a non-TBSZ account.
Other costs are the early redemption of government securities (1%), the fee for early repayment of the loan (another 1-1.5%), and the initial cost of the loan.
It can be quickly seen that at 10 million HUF, 1% net interest gain represents a hundred thousand HUF annual gain. (Be careful when calculating that due to the continuous repayment of the loan the amount of the capital decreases, thus the profit difference on the available capital as well.)
The formula is further refined by state-supported loan repayments
On the one hand, in cafeteria, you can apply for tax-free home loan repayments. This saves you tax on other cafeteria items. For example, the tax on cafeteria received by the health fund is 41.3%, and the tax rate on home loan repayment is zero, with a monthly repayment of $ 83,000, the difference is obvious. (Even if the employer determines our cafeteria frame gross so we get more for zero-key cafeteria items.)
In addition, we can withdraw about $ 20,000 per debtor from a self-help fund, in which case our profit is 20% of the amount paid to the fund in the form of a tax credit, minus the cost of the fund. With two debtors and average cashier costs, it is approximately 6,400 HUF / month, or approximately 77,000 HUF / year.
Home savings fund that can also be used for a home loan prepayment
Where the state provides 30% subsidy per year (minus the interest on the loan, since most home savings have virtually no interest rates these days.). Every four years, I receive nearly $ 300,000 in subsidies per apartment. If 4-5 contracts can be opened in the family, the state subsidy is HUF 1.2-1.5 million every four years.
However, let’s not be fooled: the things listed above are only a real financial gain if we can’t otherwise use the cafeteria for better things, if we can’t take advantage of volunteer funds or use government subsidies for home savings.
It can be seen from the above that, with current interest rates on loans, we may be better off with long-term mortgages, but we will not become millionaires. We need to get the calculator out for our total profit and whether it’s worth it. (In premium government securities, you are well off if inflation dries in the next few years while your interest rate on the loan does not change.)
But even if you are into such an attempt, be very careful, because you can burn yourself badly if you do not care about the risks that exist even if you are unaware of it. I could tell you about people who borrowed money on their existing house in 2007-2008 to turn the money on the stock market well. The biggest pitfalls were those who took out a Japanese yen loan in 2008 to invest in the Chinese stock market through unit-linked insurance. Unfortunately, I have met many of them during counseling. Don’t do that stupid thing.