Credits are an exceptionally important financial instrument for most people, particularly for young people who are buying their first property.

With the aim of resolving housing issues, buyers are primarily interested in knowing whether they are creditworthy and what the amount of their monthly payment will be. However, it is not enough to focus solely on credit approval or the affordability of the current monthly instalment, as residential credit is repaid in the long run. Banks offer various residential credit offers that need to be understood. If you understand the conditions, you will find it easier to negotiate and choose the option that is long-term acceptable. What is interest and how is it calculated? Interest rates on credit are the price for borrowed money. They depend on:

credit amount
credit repayment period (credit term)
agreed interest rate (interest rate)

Interest is calculated based on the interest rate (interest rate) that is expressed as a percentage and is always tied to the calculation period or term (most often it is a year). Interest can be calculated:

relatively (proportional) method
constant method

Considering the calculation time:

advance, interest is calculated in advance in a proper manner at the beginning of the calculation period
decur, interest is calculated in a proper manner at the end of the calculation period

What is the interest rate? The interest rate is the percentage of debt that the user of the credit must pay to the bank in the agreed period. Differences

Nominal interest rate

Interim interest

Effective interest rate

Priority interest rate

Depending on the property of variability of the nominal interest rate, they can be:

fixed interest rate: is unchangeable throughout the entire agreed term and does not depend on market conditions, which change during credit repayment periods
variable interest rate: exposed to changes throughout the agreed term, due to changes in the reference rate, within the limits defined by law

At residential credits, the most common is a combination of fixed and variable interest rates. It defines the period during which the interest rate is fixed, and during which it is variable.

EXAMPLE combination of fixed and variable interest rates

Comparison of fixed and variable interest rates

FIXED INTEREST RATE

VARIABLE INTEREST RATE

There is no interest rate risk In the case of an increase in the reference interest rate

the agreed interest rate is the same
the amount of the agreed monthly instalment remains unchanged
the credit cost remains the same (unchanged)

In the case of a decrease in the reference interest rate

the agreed interest rate remains the same
the amount of the agreed monthly payment remains unchanged
the credit cost remains the same (unchanged)

Interest rate risk In the case of an increase in the reference interest rate

the agreed interest rate increases
the amount of the monthly instalment increases
the credit cost increases

In the case of a decrease in the reference interest rate

the agreed interest rate decreases
lower is the amount of the monthly payment,
decreases the credit cost

What affects the change in the variable interest rate? Variable interest rates are composed of two parts:

fixed part that is unchangeable during credit repayment periods
variable part that depends on the change in the reference market interest rate for a certain currency. This can be e.g. national reference rate (NRS), EURIBOR, transfer to treasury records of the Ministry of Finance (TZ MF) or the average interest rate on deposits of citizens

Variable interest rate = fixed part + variable, variable part (reference rate) Example: 2.56% per annum = 2.43 p.p. + 6M NRS1 for HRK (current 0.13 p.p.) Variable interest rates have been regulated since 1 January 2013. The Consumer Credit Act has regulated interest rates in such a way that interest rates must be tied to the publicly announced reference rate. Such interest rates can only be changed as a result of a change in the reference rate.

Difference between national reference rate (NRS) and EURIBOR

Before choosing a credit Before choosing a credit, pay additional attention to:

the amount of the fixed interest rate
the fixed interest rate term
amount of the variable interest rate
fixed interest rate (margin of the bank)
agreed reference rate
reference rate alignment period

Recommendations

Do not make a decision based on the initial interest rate when choosing a credit.
Get to know all conditions during the entire term of the credit repayment. For example, if you agree on a 25-year credit where the fixed interest rate is agreed for a term of five years, you must pay attention to the conditions of the variable interest rate as it is applied to the remaining 20 years of credit repayment.
Compare the EKS of different credit lines of various banks, find out about the conditions of variability, request more information and detailed explanations.
Ask questions and request explanations until you understand e.g. 'EKS', 'nominal interest rate', 'intercalary interest.'

What is the difference between annuity and rate? Repayment of credit is carried out in the agreed time period according to the repayment plan and in it the instalment of the principal and the instalment of the associated interest are included. We distinguish:

repayment in annuities
repayment in rates

Repayment in annuities

Repayment in rates

Risks

What is exchange risk?

What is interest rate risk and when does it arise?

The user of the credit decides whether to choose a fixed interest rate or a variable interest rate. If they choose a fixed interest rate, there is no risk of changing the interest rate as it is valid in the same amount for the entire credit repayment period. If they choose a variable interest rate, there is a risk of changing interest rates, higher or lower, in accordance with the change in the reference interest rate tied to it.

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