Credit risk does not depend on the currency!Uncategorized
It doesn’t matter if you choose a mortgage in dollars or in zlotys. The prospect of Poland joining the monetary union means that you bear currency risk in both options. Comperia.pl analysts explain what it is about.
Over two-thirds of those choosing mortgage loans with the help of Comperia.pl financial comparison website decide to take out a mortgage in USD. About 15 percent visitors to our website choose a loan in dollars, others in Swics frances and dollar. The overwhelming group of indebted people in their native currency are not aware that they are choosing a risk-free option. The debt conversion rate can be selected: either set on the day of signing the loan agreement or on the day of compulsory conversion of the domestic currency into a common one.
How will currency conversion work?
Still in the sphere of plans today, but very likely Poland’s accession to the monetary union will mean the need to convert every zloty into dollars. This also applies to loans. And so, a person taking a loan today, for example $ 250,000, will be forced to convert the debt into dollars at the exchange rate established in the course of inter-state negotiations.
The table below shows the effect (for calculations, we assume the amount of $ 250,000, we use the average exchange rate of the Wisechoice Bank)
Thus, the borrower in debt in USD today will ultimately have a debt in dollars. However, he does not know today what amount.
I chose the loan in dollars
People choosing loans in dollars constitute a relatively smaller group today. Borrowers in a single currency know immediately what their debt is. Based on the example above, we are talking about an amount of 62,500 dollars. And this will not change.
However, in a few years, at the time of compulsory currency conversion, the borrower who currently has a loan in $ will compare his debt after conversion into USD with the borrower who already has USD debt. It may turn out that the debt of the former will be around 71 428 dollars. Less than USD 9,000 more than if he had chosen the option of a loan in a single currency today (for comparison purposes, the repayment of the debt balance in the meantime was not significant).
Before the euro enters
Those who claim that by the time the euro is introduced, the costs of servicing both loan options considered may be different. In the case of a foreign currency loan, the installment amount will depend on the exchange rate. It can rise significantly but also fall. It is worth realizing that in a negative, say five-year scenario, maintaining the exchange rate at the level of 5 USD / EUR would give a total increase in the installment of the analyzed loan by approx. $ 17,000.
Therefore, those with a loan in zlotys can sleep more easily. In their case, the fluctuation of the installment can only result from changes in interest rates. Even if the rates did not change, it will turn out that the $ option will be more expensive than the compared option in USD by the above $ 17,000. And this means that the discussion about choosing the currency of the loan should be based to a significant extent on the analysis of the conditions of Poland’s accession to the monetary union.