For several weeks, banks have had a new limitation around their neck – they must be more conservative in their credit standing.
According to the provisions of the T recommendation, which entered into force in December 2010, the sum of all loan installments repaid by borrowers may not exceed 50 percent. net earnings. If someone earns above the national average (today approx. USD 3.5 thousand gross), they can spend 65 percent on paying installments. salary.
And so a person who gets, for example, 2,000 USD (below the national average), will be able to allocate at most 1 thousand for all installments USD. The purpose of imposing this restriction on financial supervision was to prevent over-indebtedness. But even by strictly adhering to the recommendation paragraphs, creditworthiness can be manipulated to some extent.
Credit extension costs a lot
One of these tricks is extending the loan period. To what extent can this improve creditworthiness? Take, for example, a person earning a 2,200 USD net, which wants to take 200 thousand. USD mortgage.
We would like to remind you that it may allocate a maximum of 1.1 thousand to all installments. USD. At 2% margin the interest rate on the loan today will be around 6 percent If the loan will be spread over 30 years, then the monthly installment will be roughly 1.2 thousand. USD. Even if we do not have other loans on our back, it is USD 100 too much from the point of view of T.’s recommendation. Let’s extend the loan period by 10 years.
With a 40-year period, the installment will drop by USD 100, so theoretically the bank should already grant us such a loan, although we will be indebted to the statutory stopper. And if we extend the loan repayment to 50 years? The installment will fall by another USD 50.
There is, unfortunately, nothing for free. Although we extend the loan period, we get a slightly lower installment, but at the same time, the value of interest that we will have to pay back goes up. We will keep money borrowed from the bank for longer. In the case of a loan for 200,000 USD with equal installments for a 50-year commitment, the total cost of interest is almost 423 thousand. USD! It’s over 2 times more than we borrowed.
The shorter the period, the lower the total cost of interest. With the higher income, you can afford a shorter loan period. For a loan for 30 years, the total cost of interest is already falling to 231 thousand. USD, and at 15 years to just over 100,000 That’s half what we borrowed.
But in practice, it is not visible that extending the loan period today is a sensation in improving creditworthiness. Banks are increasingly competing in the mortgage market, but since the introduction of the T recommendation, no one has decided to adjust this parameter.
There are other ways if the installment is too high
Most Good Finance credit advisors also do not see any special interest in longer loan repayments from customers. Their observations show that banks do not propose such a solution themselves. It is the role of a credit advisor to propose an extension of repayment.
Advisors admit that if a bank counts its creditworthiness too conservatively, the first thing is to look for another institution that will calculate it slightly milder. The next step is the trick with extending the loan period. If one gives a loan for a maximum of 30 years, another, more flexible is sought. But this practice is nothing new. That was long before the recommendation was introduced.
Many borrowers are not afraid of the longer loan period, because they are hoping that they will pay the loan ahead of schedule. But not all customers decide to turn it up as much as possible. – Customers usually do not want a longer loan period than 30 years – says one of Good Finance advisors.
And they do not want to, because of such a maneuver costs. – My clients react to the information about the possibility of extending the loan with the question: how much does it increase the interest cost? And because the loan becomes more expensive then, they give up such a solution – says another client advisor.
But not only a longer loan period can improve your credit standing. In a way, this is influenced by the growing competition of banks.
The consistent cutting of margins
That we have been observing for several months is, after all, a lower interest rate, and thus a lower monthly installment with the same repayment period. Another way to improve the capacity proposed to clients by Good Finance advisors is to consolidate other commitments that the client has. If several consumer loans are combined, a little more space in the household budget will remain for the mortgage installment.
The amount of credit available can also be affected by a change in the decision on the currency of the loan. Generally, the dollar loan capacity increases. In this case, because of another recommendation. If we apply for a foreign currency loan, banks must calculate the capacity as if we were taking a loan of 20%. larger than in reality (this is to protect customers against the weakening of the dollar against the loan currency, as a result of which the installment increases). There is one more method – joining a third party loan. Then the earnings of people taking loans together are added.
As you can see, the creditworthiness, and thus the available loan amount, can be manipulated to some extent. However, we advise against getting into debt.