The Central Bank of Cyprus warned households to be wary of interest rate options and clauses when negotiating a mortgage deal.
In an announcement, the CBC said the upward trend in interest rates prevailing internationally in recent months has significantly increased the cost of borrowing for households and businesses.
Due to this development, the Central Bank urged the public to choose wisely between a fixed and a fluctuating interest rate.
“Borrowers need to fully understand the implications of the options available and particularly at what point in the rate’s rise/drop cycle they might lock their loan, especially if they are considering fixed-rate loans,” said the Central Bank.
It said potential borrowers should carefully study the loan contracts put before them and weigh factors such as the monthly instalment amount throughout the loan and any early repayment charges and changes in the type of interest rate.
“There should be clear and sufficient explanations from the credit institutions for all of the above, including calculating the total amount payable in interest under various scenarios.
“Interest rates fluctuate depending on the macroeconomic conditions that prevail from time to time.
“That’s why borrowers’ decisions about the characteristics of a loan contract must be made after research, analysis and reflection,” emphasized CBC.
The recommendations of the Central Bank are made as inflation continues to remain high, as the European Central Bank (ECB) hinted at another increase in interest rates.
The interest rate on the main refinancing operations and rates on the marginal lending facility and the deposit facility were last increased to 3.75%, 4.00% and 3.25%, respectively, from 10 May.
However, Eurozone inflation remains high, so ECB President Christine Lagarde said on Thursday that further policy tightening is needed.
“Inflation is very high and is going to stay that way for a very long time,” Lagarde said in a speech.
“We are determined to bring it back to the medium-term target of 2% in time.
“That’s why we’ve raised rates at the fastest rate on record – and we’ve made it clear that we still have some ground to cover to get rates to fairly restrictive levels,” she added.