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HomeBUSINESSValentin Anghel, CEO of AVBS Credit: It is advisable to make decisions...

Valentin Anghel, CEO of AVBS Credit: It is advisable to make decisions in advance when we want to refinance

Increases in IRCC and ROBOR over the past year, along with the fluctuation of interest rates in recent times, have affected hundreds of thousands of Romanians with variable interest rate loans. Refinancing an existing loan is one of the successful tools recommended by AVBS Credit specialists.

Reducing the interest and monthly installment are the main advantages of refinancing an old loan into a completely new one, with much more favorable conditions. Therefore, if you previously contracted a loan with a certain interest rate, and currently, you can benefit from a better and lower interest rate than you already have, the option available to any debtor is to refinance.

Mortgage loans and New House loans contracted in the past by debtors currently have variable interest rates linked to IRCC of over 8%.

Mortgage loans and First House loans contracted in the past by debtors currently have variable interest rates linked to ROBOR of over 9%.

To reduce these interest rates and the installments related to these loans, which have become difficult to repay, the solution is represented by refinancing into mortgage loans in lei or euros with fixed interest rates for 3 or 5 years.

The fixed interest rate for a mortgage loan in EURO for 3 or 5 years starts from 4.95%, with included life insurance. From the 4th or 6th year of the loan until its repayment, the interest becomes variable, formed by the bank’s margin of 2.85% + EURIBOR 6M. This is currently the cheapest refinancing mortgage loan.

The fixed interest rate for a mortgage loan in RON for 5 years starts from 6.90%, to which the cost of life insurance is added. From the 6th year of the loan until its repayment, the interest becomes variable, formed by the bank’s margin of 2.1% + IRCC.

Fixed-rate mortgage loans can refinance both previously contracted variable-rate mortgage loans and New House and First House loans. Even New House and First House loans contracted for less than 5 years can be refinanced by obtaining the refinancing agreement from the Ministry of Public Finance.

The refinancing agreement from the Ministry of Public Finance usually comes within 30 days. In this case, credit brokers recommend submitting the refinancing file to the bank and obtaining financial pre-approval for the loan. In this way, the debtor gains time and reserves the refinancing offer, protecting against the possibility of losing the desired interest rate.

Banks frequently adjust their financing offers, so interest rates may be valid for only a short period. Financial pre-approvals for loans are valid between 30 and 180 days, depending on the bank and the type of loan.

When the refinancing agreement is received by the debtor from the Ministry of Public Finance, the refinancing file goes through the next approval stages at the bank.

Therefore, it is advisable to make decisions in advance when considering refinancing, so that new changes in interest rates do not intervene.

In the context where IRCC is set to increase again from April 1, 2023, from the current value of 5.71% to 5.98%, the refinancing option is the best, safest, and most reassuring decision a debtor can make to ensure they will not be affected by fluctuations in bank indices in the near future.

Here is a refinancing calculation for a mortgage loan in lei with a fixed interest rate for 5 years, after making an early repayment on the initial loan of 5,000 euros:

First House loan, contracted in 2015, for a maximum period of 30 years.

Initial loan interest: bank margin of 2% + ROBOR.

Current balance: 59,000 euros = approximately 295,000 lei.

Remaining period: 22 years (264 months).

Current loan interest with the annual FNGCIMM commission included: approximately 9.04%.

Monthly installment = 2578 lei.

Total payable in the remaining 22 years: 680,530 lei;

The debtor makes an early repayment of 5000 euros from the balance of 59,000 euros, choosing to maintain the same installment but reduce the loan period.

Current balance: 54,000 euros = approximately 270,000 lei;

Repayment period: 17 years (204 months), a decrease of approximately 5 years.

Then, the debtor refinances into a mortgage loan with a fixed interest rate for the first 5 years.

Fixed interest rate for the first 5 years: 6.90% + life insurance.

Repayment period for refinancing: 17 years (204 months).

Monthly installment: 2322 lei. (with insurance included)

Total payable in the next 17 years: 473,585 lei.

“The decision to refinance a variable interest rate loan into a mortgage loan with a fixed interest rate for the first 3 or 5 years must be made before reaching the inability to pay, as once in incapacity to pay, refinancing becomes impossible. Therefore, if you no longer want to be affected by ROBOR / IRCC, want your installment to decrease and keep it at a fixed value for 3-5 years, then it’s the right time to refinance. As of April 1, IRCC will increase again, not by much, but it will increase. From July 1, 2023, there is a probability that IRCC will register a very slight decrease, almost imperceptible for the rates of Romanians, but this minuscule decrease represents the first positive sign of recovery in the banking market. The exact value of the IRCC index for the period July 1 – September 30, 2023, will be available at the end of March 2023. We still cannot predict if IRCC will begin its quarterly decrease cycle from the middle of this year, this we will find out in the next 6-12 months. So, refinancing still remains the best option for the safety of debtors and securing installments,” says Valentin Anghel, CEO & Founder AVBS Credit.

In the refinancing process, the credit broker is an essential specialist who can help identify the best refinancing offers that are both cheap and suitable for debtors.

AVBS Credit works with over 35 banks and non-banking financial institutions in Romania, and the services are free for clients who opt for a loan. AVBS Credit is a member of A.R.B.C. (Romanian Association of Credit Brokers).

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