Black Thursday in the currency market caused a tremor in the heart of many borrowers in debt in CHF. Within minutes, their debt and installments increased by several dozen percent. Unfortunately, you should not expect a return to the situation before January 15 in the coming months. All people paying for loans in Swiss franc must now be patient and accept the increase in loan installments. The more that there is practically no possibility to significantly reduce installments, and those that are available, but only for a few, will reduce installments by just a few percent.
In the morning of January 15 this year. CHF / PLN exchange rate fluctuated around 3.55. A few minutes before 11 o’clock “fired” to the level of 5.19, because eventually stabilized at 4.20-4.30. Such a large increase in the CHF / PLN exchange rate automatically increased the debt and installments of Poles paying back loans in Swiss currency. The table below shows how the loan installment in Swiss franc has changed.
First of all, don’t panic
So what can people do if their installments and debt suddenly increase. The worst solution will be to convert the loan into USD. In this way, we will convert a low-interest loan in CHF to a higher-interest loan in USD. In this way, the loan installment will automatically increase by a dozen or so percent. At the same time, by converting our commitment, we do not give ourselves a chance to reduce the debt balance when the dollar begins to strengthen. The sale will not be a solution. Today the debt balance is much higher than at the time of taking the loan and in many cases exceeds the current value of the property. Therefore, the sale of an apartment or house will not allow you to repay the loan completely and is not a solution to the problem.
Can you lower the installment?
Unfortunately, there are not many ways to deal with such a large increase in the CHF / USD exchange rate. Possible solutions will only slightly offset adverse changes. One method is to extend the loan repayment period, but this is only possible if the loan has not been taken out for the maximum period in the bank. For example, extending the loan repayment period by 5 years, from the original 25 years to 30 years, will reduce monthly payments by approximately 13-15 percent. However, it is important to remember that a longer repayment period means higher interest paid throughout the loan period. Similar consequences are associated with a change in how the loan is repaid. If the loan is repaid in the system of decreasing installments, a change to equal installments will also cause a reduction of the loan installment. However, such a change is also an increase in the total costs considered over the entire repayment period. Unfortunately, both solutions, and in particular the change in the repayment system, will not be able to benefit too many customers. Most borrowers chose lower equal installments at the time they took the loan. Similarly, a large group of people were indebted for the maximum repayment period, so extending the loan period will not be possible. However, if there is still a chance to reduce monthly payments in this way, it is worth considering this solution and thus improving your financial liquidity, even at the expense of higher interest paid throughout the repayment period.
Short-term solution is also suspending the loan repayment period
In almost every bank, the borrower is entitled to suspend the repayment of the loan installment. Depending on the institution, you can withhold the repayment of one to three loan installments. Depending on the bank, either the entire installment or only its interest portion is suspended. Credit holidays are, however, a solution that allows only for a short suspension of the problem of paying the installment. If, as expected, the Swiss franc will remain strong for many months, then a short-term suspension will not solve the problem of high installments.
We can lower the loan installment by purchasing the currency yourself
In many banks, the sales rate is much higher than that used in other institutions, both in exchange offices and in banks. Changing the method of repayment of the loan does not involve any costs, and thanks to the independent purchase of francs, e.g. in an online currency exchange office, we can gain a dozen or so groszy on one franc. Of course, this will not be an advantage that will completely offset adverse changes in the exchange rate, but it will certainly allow for a partial reduction of the installment, especially when we have a loan at a bank that uses very high sales rates.
Unfortunately, in the current situation, borrowers in debt in CHF do not have many options to maneuver and reduce their payments or to free themselves from debt without incurring high costs. Any solution will be costly and unfortunately the only sensible thing is to wait. It remains for us to count on the dollar to appreciate as soon as possible and to lower the CHF rate and reduce the loan installment. However, this should not be expected in the coming weeks. This means that everyone in CHF will have to pay the next few installments in an unprecedented amount.