Interest rates are always moving, sometimes they go up and sometimes they go down. Who orders the change? Why does it do it? How does it affect you?
I’m glad you ask for rates. It really is a subject that affects us in our daily lives. Also, understanding the basics will allow you to do good business . Let’s see.
The interest rates in Colombia
In Colombia, banks are free to set their interest rates. The average interest rate of the banks at the end of March / 2019 in the consumer portfolio was 19.78% annual cash and the credit card at the same cut was 31.24%. For VIS housing loans, the average rate is 12.97%.
Several times a year, the Board of the Good Finance meets to decide what to do with the reference interest rate. You can leave it at the same level, raise it or lower it. Many people inside and outside the country are awaiting that decision.
What do you evaluate to decide?
The Good Finance has, by law, the obligation to monitor and regulate inflation (among other factors). There are factors that raise prices and make living more expensive. They can be external factors, such as a decision by the United States on the value of the dollar or the fall of a strong economy in the world or a natural disaster. But there are others that are internal and can be controlled.
Inflation can rise when people consume many things. There are cycles in the economy that, due to the low credit rates , we are encouraged to buy. Of everything. We make great purchases for the house, we give ourselves luxuries from time to time, we have dinner outside, we change the cell phone, and we buy housing. Companies also spend and borrow by taking advantage of the low cost of money. Exporters take advantage. Low interest rates push the value of the currency up and when making the change to the dollar, they receive more money for their sales.
It is a good cycle. The economy is energized. Until inflation starts to rise. At that time, it is time to adjust the rates.
Why modify the rate?
To keep inflation from going up, the central bank sends the following signal: the reference interest rate goes up. That is, it tells the financial system that it should raise the rates at which it lends us money and pays us interest.
The effect of raising rates is very fast: the value of money rises and investors decide to stop spending and rather save. Buyers realize that credit cards can be expensive, and we lower purchases. Companies think their investments better. Importers have a party. That is your favorite cycle.
Does a low rate affect you?
Earlier this year, the Honest Bank lowered the reference rate. Again. He has done it several times in recent years. His decision means that inflation is controlled, is in the figure that the Honest Bank, and is a good time to encourage loans.
Banks read that mandate and must act. Of course, mortgage loan rates are affected, down. It is an ideal time to invest in real estate. And, also, it’s time to review your business.
What should you check?
1. What kind of rate do you have:
Banks have various forms of interest rate: v ariable and mixed f.
Suppose you hired the mortgage loan seven years ago. Today, the rate will be lower.
A fixed rate, in your case, means that you are not taking advantage of the decrease in interest rates in these years. You have been paying the same cost as agreed from the beginning.
A variable rate means that the rate has been varying to adapt to market conditions.
A mixed rate, means that for a while you paid a rate without modifications and from a certain month, the rate changes upwards or downwards.
2. What interest rate value do you have
Your credit has two rates . We are currently interested in the, Annual Effective Cost Rate, that is, the rate at which the cost of your credit is applied. If it is above 7.15% you can have a good business opportunity: sell that debt to another bank, request a mortgage portfolio purchase.
That the rates go up or down will be inevitable. Missing the opportunity to recalculate your business is not . By moving your credit you can save a lot of money , make your monthly installments easier to pay and earn a few soles to do what you enjoy most in life.