What is the Jabanke rate?
People applying for a mortgage in the national currency meet the Jabanke rate. We know that it is related to mortgage rates. However, what is it really and why is it important for borrowers?
Definition – what is Jabanke?
According to the Jabanke definition, it is the interest rate on loans on our domestic interbank market. At this rate, banks give loans to other banks. This is the arithmetic mean of the interest rate in the largest banks on an annual basis, with extreme values being rejected. Jabanke is determined each day based on data provided by banks at 11 am on business days. Put simply, it is the interest rate on loans that banks are willing to give to other banks. The published indices are published at the time of the Fixing, and the participating banks are obliged to enter into transactions with each other, at rates not lower than those agreed. Jabanke is set for time periods for loans granted to each other by banks. The symbol at Jabanke refers to the time for which the loan was granted. Jabanke 2W means 2 weeks.
Although the banks influence Jabanke, this impact is limited as the rate must be between the deposit rate and the lombard rate. This range is set by the Monetary Policy Council. The decision on the amount of these rates is made on the basis of complex analyzes aimed at establishing a low and stable level of inflation. An increase in interest rates is associated with an increase in inflation, as well as an increase in earnings. Theoretically, therefore, when your loan installments grow, your earnings also grow. Jabanke has an impact not only on mortgage loans, but also on many other transactions that occur on the financial markets.
What is the impact of Jabanke on mortgage loans?
People who have concluded a mortgage contract will not immediately learn the total cost of the loan and the amount of each installment. Jabanke is to blame for this. The interest rate is affected by the loan installment. During repayment, the loan may change depending on the variable base rate, ie Jabanke. It is next to a fixed margin, a component of the interest rate. So when it stays on an equal level, the installment does not change, while when it grows, the interest rate on the loan also fluctuates. A slight increase in Jabanke may mean a significant increase in installments, while a decrease in it may decrease it. The rules for updating Jabanke changes can be found in the mortgage contract. Thanks to this, the borrower knows how often the interest rate will change.
How often interest rates on loans change depends on Jabanke. Depending on its designation, the amount of the installment is determined. At 3M Jabanke, the interest rate is updated every three months. The borrower is then sure that the next three installments will be the same amount. Jabanke 6M or Jabanke 12M are very rare. Similarly, they give six or 12 months without changing the interest rate. Therefore, credit contracts should be read carefully.
What affects the amount of the loan in the bank?
What can affect the amount of the loan or loan installment that you take out with the bank? The first thing is the interest rate and commission on which you earn a bank branch. Each borrower can influence the amount of this factor, using various rankings and choosing the cheapest offers. The second thing that unfortunately has no effect is the Jabanke rate. However, you can decide on a loan when the interest rates set by the Monetary Policy Council are lower, thanks to this, although we will be able to control it to some extent.
Is it worth choosing a loan at the time of low Jabanke rates?
Jabanke – a graph since 2001. source bankier.pl
On the day of writing this article, ie 17 May 2018, we have record low interest rates on loans – 1.78%. The situation when we have access to exceptionally cheap loans has been maintained for over 3 years. Is it worth it now to decide on a loan?
It is worth noting how the counterparts of this indicator look in economies with a higher GDP per capita. In Switzerland it is -0.75%, Germany 0%, in Great Britain 0.5%, and in the US 1.75%. What may be interesting is that the US has recently been raising interest rates. However, in the other countries of Western Europe, the graph resembles that in Poland. Interest rates are still decreasing. The question of borrowing at the moment comes down to whether anyone believes in the next economic crisis.
Will the cost of credit increase in the event of a rate hike? If we take a loan for 200,000 PLN, with a repayment period of 25 years, a fixed margin of 2% and Jabanke 3M.
1.7% – Jabanke, PLN 1,023 – installment, PLN 56.848 – total loan costs 3.0% – Jabanke, PLN 1 169 – installment, PLN 100 754 – total loan cost 5.0% – Jabanke, PLN 1 414 – installment, PLN 174 067 – total loan cost 10.0% – Jabanke, PLN 2 106 – installment, PLN 381 934 – total loan cost Currently, we can assume that we have a rate of 1.7%. The loan costs are very low, the availability is high, and the borrowers are satisfied. However, what happens when rates rise to 5%? Installment grows by 40%, and the total cost by 300%. These rates do not look appealing, and 5% is the real rate at which interest rates can rise during the crisis.
Interest rates during the crisis
Poles, as well as people all over Europe, have become accustomed to the low cost of credit. Minimum interest rates equate to lower costs and greater availability. Many people are credited “just right” or leave a small margin for changing the cost of credit. The salary is enough for living costs, loan installments and not much more. This is a critical situation and it was the people who managed the finances in such a way that they lost their homes and property throughout their 2008 crisis. How to protect against it?
There are several possibilities. The first and the simplest is to set a lower installment and which will provide a larger buffer between monthly revenues and expenses. The disadvantage of this solution is higher credit costs. The second solution is overpaying the loan or saving enough to have money to repay the installments for at least 6 or preferably 12 months. That should be enough for Jabanke to stabilize and return to the lower level. Added to this is the increased risk of losing your job and definitely lower chances of getting a loan to repay your obligations, which is common during a weaker period in the economy.
It is true that these are not convenient solutions, but the loss of the apartment is also not a pleasant experience. It is worth the opportunity to prepare before the fact, to later sleep well.