Many Hungarians want a new apartment. But the question may arise: can it be worth keeping the existing apartment and buying a new one next to it? The conditions, advantages and disadvantages of this solution were gathered by the experts of Bankmonitor.
If you are buying a new property and morphing in it, or if you might keep the old one, then according to Bankmonitor experts, there are a few things you should definitely think about. We started from the premise that you definitely need a home loan.
Do you have enough self-sufficiency for a home loan?Home loan An important condition, of course, is that you have enough of your own savings and self-sufficiency to buy your new home. You should know that when buying a home, up to 80% of the purchase price can be financed from a home loan by law, and banks may even deviate from this in a stricter direction, which is why it may be worth considering 70 percent. In other words, you would need at least HUF 15 million in equity to buy an apartment worth HUF 50 million!
Acceptable on its own the chocolate support If you are requesting a discount for an existing child, or the Baby Waiting loan Also 75 percent. You can use these amounts to supplement your own savings. Even if you do not have the minimum deductible to make a purchase, you will not be able to keep your current property. (After selling the apartment, you can of course buy it by turning the purchase price.)
Do you have enough income?
Of course, you should be able to pay off the loan installments from your existing income. And yet the Income Installment Ratio (JTM) there is also a legal requirement for the size of the income – that is, how much of the income can be spent on repayment. If your salary does not exceed HUF 500,000, the repayer of existing and new loans can make up to half of your income. (This ratio is only true if you choose a fixed-rate loan for at least 10 years.) In addition, even banks may deviate from this rule in a stricter direction, so it may be worthwhile to calculate it at 40 to 45 percent.
If you are unable to pay the installment from your salary, you will not be entitled to the requested loan amount, meaning you will have to raise the lost amount from another source: there is a good chance you will have to sell your existing home.
How much can you earn with housing rent?
It may not be worth at all to keep your former home just because you can. In addition to examining the conditions, it is also worth recalculating whether the thing is worth it at all.
Let’s look at how much extra it would cost if you needed a larger loan amount to keep your home. How much would the loan installment increase, and how would the increased costs be affected by the increased loan amount? Also, let’s look at how much your income would increase because of this: for what fee could you rent out the apartment in the long run. (In this situation, it may be worthwhile to enter into a multi-year contract with the tenant.)
It’s a good sign if your extra income covers the expenses associated with the loan. However, you may even have to reckon with how much you should spend on the apartment in the future. After all, you would remain the owner of the property, which is why you should also be responsible for the renovations and maintenance work. If you rent out the apartment furnished, you should also finance the replacement of the furniture and individual household appliances. This should also be produced in the long run by your investment.
You may want to keep your apartment even if the expected income just covers your extra expenses. In this case, your profit would come from the fact that the principal debt of the borrowed loan decreases over time, so if you repaid the loan later, you would have to pay less than the amount of the borrowed loan, and the difference would be the profit from housing.
You might also want to look at how you would do if you invested your money in something else. (You can also take out a larger loan amount in addition to selling the apartment.) You need to consider what profit the selected investment would bring you, would it cover the cost of the loan?
How much profit can we achieve if we invest HUF 10 million in MÁP Plus?
Suppose, for example, that the extra money available with a loan would be HUF 10 million, which You would invest in Hungarian Government Securities Plus. In 5 years, the retail government security will amount to HUF 12.7 million, while for the housing loan – if the prepayment fee is included – you will pay only HUF 11.95 million during this period. In other words, you can achieve a profit of almost 800 thousand forints with this investment almost without risk. It is worth choosing a home investment if you are expected to extract that raw material.
You can’t go without the expected development of real estate prices either: if you think that the value of your home will increase in the future, the value of your investment will increase over time alone.
What are the risks of keeping the apartment?
A real estate investment in itself can carry a serious risk, as real estate prices and rental prices can also develop unfavorably. And this risk can increase if you finance it all from borrowing.
For example, the loan interest rate and the installment may change: at the time of the interest period, the bank may unilaterally change the interest rate. That is, your credit may even become more expensive over the term. (Of course, the extent of the change cannot be freely determined by the financial institution; the interest rate may change on the basis of indicators reflecting the current market situation at the time of the interest rate change.) You can reduce the risk of interest rate rises. with a long interest period, or by choosing a fixed rate loan until the end of a term. However, typically for safer loans, the starting interest rate is higher, you practically have to pay the price of the security.
Rents can also drop, which can lead to the costs associated with your investment – the loan installment – no longer being covered by your income. (This can happen at any time, just think of what happened in the Budapest rental market due to the coronavirus epidemic.) That’s why you may want to rent out your apartment for a longer, multi-year fixed rent, reducing this type of risk.
Home prices may also fall in the future, which could result in a decrease in the value of your investment. In addition, house prices and rents move together to some degree. That is, a decrease in your income may be accompanied by a decrease in the value of your investment.
A Bank monitor experts recommend the following for those who want to buy a new home while retaining their home – treated as an investment:
– If you also need a home loan, you are definitely at least 10 years old interest period, or a fixed-rate loan is worth choosing, thus hedging and mitigating the risk of interest rate fluctuations.
– It is worth getting acquainted with the rental market in advance. It is necessary to assess how much the apartment can be rented out in the longer term. If the revenues don’t cover the cost of the investment, it’s not worth cutting into.
– It is worth getting acquainted with the current situation of the real estate market in advance, in addition, the development of house prices must be constantly monitored. Thus, a possible price reduction could be taken immediately by the investor. (Of course, this does not necessarily mean selling the property.)
Source: Ingatlanhírek by ingatlanhirek.hu.
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