Ruling in favor of Katseli Law loan interest being based on the monthly installments only

Banks and funds  will have to reprice the loans protected by the so-called Katseli Law, to comply with the Supreme Court decision that defines the monthly installment of the loan as the basis for calculating the interest rate and not the total principal.

The decision concerns 250,000 individuals and approximately 200,000 main residences, which received protection from the law named after former economy minister, regulating loans of €12.5 billion. Most of those loans have been subject to “Hercules,” the state guarantee mechanism.

These borrowers, as legal sources explain, are now able, based on the decision, to claim the amounts that have been attributed to them for a number of years and which led to the expansion of their total debt.

The reversal of the current practice for calculating the interest rate, according to the funds’ initial calculations, leads to a loss of €1.3 billion, as it drastically reduces the total amount of the debt.  An indication of the difference created by the two  calculation methods is that for a loan of €100,000 with an interest rate of 3% and a repayment period of 20 years, the interest on the entire capital increases the total debt to €135,000 and the monthly installment to approximately €560. The interest on only the installment would drastically limit the interest that would be charged on the same loan, since it would have an installment of €416 per month and only €12.5 in interest per installment, i.e. a total of €3,000 in interest for the entire duration of the 20-year repayment.

The verdict’s reasoning was that the Katseli Law legislator protected the first residence after a “haircut” at the level of the commercial value of the property. Therefore, if someone owed, for example, €150,000 and the value of their first residence was €100,000, they could, in the context of bankruptcy, achieve a debt haircut by €50,000. The remaining debt of €100,000 was regulated for up to 20 years with a certain installment – in this case €416 per month, charged with the conventional interest rate of a common mortgage loan.

Original Story: Ekathimerini | Author: Evgenia Tzortzi and Sofia Spingou
Edition: Prime Yield