Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245237 
Year of Publication: 
2019
Citation: 
[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 7 [Issue:] 1 [Publisher:] Taylor & Francis [Place:] Abingdon [Year:] 2019 [Pages:] 1-18
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
The annual percentage rate of charge (APRC) designed to reflect all costs of borrowing is a widely used measure to compare different credit products. It disregards completely, however, risks of possible future changes in interest and exchange rates. As an unintended consequence of the general advice to minimize APRC, many borrowers take adjustable-rate mortgages with extremely short interest rate period or foreign currency denominated loans and run into an excessive risk without really being aware of it. To avoid this, we propose a new, risk-adjusted APRC incorporating also the potential costs of risk hedging. This new measure eliminates most of the virtual advantages of riskier structures and reduces the danger of excessive risk-taking. As an illustration, we analyze the latest Hungarian home loan trends with the help of scenario analysis.
Subjects: 
annual percentage rate of charge
adjustable-rate mortgages
foreign currency denominated loans
excessive risk-taking
regulation
JEL: 
G18
G21
G28
G41
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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