“Between housing loan in Euro with 7% and Ron with 10%, what should I choose?” “Loan in Euro at 5%, or wait. Patience is a virtue”

Last week, on 23.02, a reader of this blog sent me the following question:

“Euro at 7% is dangerous because EURIBOR is about 1%, but what about RON? It stands at 10% with ROBOR at 6%. Isn’t this more dangerous?

On a 20 years loan in RON, how will the credits and the ROBOR be converted in EURO?”
There are more people asking me the same questions, expecting an answer by what is better: Housing loan in Euro or in Ron?

Housing loan in Ron? You must be joking, right?
With all due respect: What is this “loan in Ron for someone to buy his home” story? Are we talking seriously? As I had told you last week, any loan with interest over 5 – 6% is dangerous. 10% is more than dangerous, it is lethal. It is like opening your own grave, entering inside it and then “hope that it will not rain, no one will throw some soil on you etc”.

(You can read about the acceptable interest rate for a housing loan here)

ROBOR is at historical low, but still high. It makes sense…
ROBOR, the equivalent of EURIBOR for Romania, is at its lowest level ever. This is the result of a carefully chosen chain of actions, implemented by the Governor of BNR, Mr Isarescu. But despite its low level comparing to the past, ROBOR is still expensive. This makes sense, as a very low ROBOR would have caused many problems to the economy. Speculators would love to see this happening, in order to take advantage of the Romanian economy’s problems and bet against Ron, trying to devaluate it.

So ROBOR is low enough in order to stimulate economic progress and growth, but not low enough, securing the country against currency fluctuations.

In case of Euro adoption, all figures will be converted to Euro. Interests will decrease too
Let us assume that (despite common sense) you have a loan in Ron, paying a big amount of instalment per month. The interest rate is high, as it expresses the value of the loan in Ron. In this case, once Euro is adopted, then:

• The outstanding amount of the loan will be converted in Euro.
• The interest rate will decrease, reaching the European standards (plus an extra cost, due to the country risk that Romania has)
• Very soon you will see “battles” of banks, in order for them to offer you an attractive “new rate” and improve your loan’s term.
• (Battles of banks, yes. But we discuss about 2015 – 2018… not today. Relax!)

“So can I trust Ron as currency to borrow money?”
You can trust Ron at 100%. But its interest is not a safe option for you to use in order to borrow money from the bank.

“In the end, what should I do? Between housing loan in Euro with 7% and Ron with 10%, what should I choose?”
This is a wrong question. There is not such thing as “choosing between two mistakes”. You can always reject both options, waiting for better and safer days. There are already loan products with lower cost and there will be even more, as some banks will enter for the competition. Be ready to take advantage of the opportunity.

Focus on 5% interest rate, or lower, if possible. You may accept even 6%, if you feel more generous towards the bank. But don’t exceed this limit. It is very risky.

I know that patience is a rare virtue. I am also aware of the fact that not so many people have it, once it is about investing in Real Estate. But we talk about your home, your life. So, be patient. You owe it to yourself. It will help you get the property you want, in the healthy way that will allow you to pay for it.

Let the “fast” guys realize their mistake in the years to come. And pay for it…