Croatian government has reached an agreement with the country’s banks to fix the Swiss franc's exchange rate to 5.8 kunas and defer the difference between the real and fixed rate into a lump sum known as "balloon" loan to be repaid later.

These are the latest measures aimed to give a breather to numerous Croatian households whose mortgage and car loans have been pegged to this ballooning foreign currency.

"This is the maximum that we’ve managed to achieve" Croatian Prime Minister Jadranka Kosor said at the end of the negotiations.

The new repayment model is intended for all who have Swiss franc-pegged loans and not just those who bought their first property with such loans, as it was previously rumoured, daily Jutarnji List writes.

The debtors will be able to choose whether to combine the new model with other measures approved by the banks. Banks could not comment on whether they expected a high demand for the new model, considering that the franc rate has been dropping in the past few days.

Should it drop below 5.8 kunas, the "balloon" or lump sum consisting of the difference between fixed and real value will also shrink. The duration of the "balloon" is limited to five years and interest rates of up to 3.95 per cent will not be applied for the first six months.

After five years, debtors will be able to decide whether they would pay for the accumulated difference with a single instalment or add it to the remainder of their mortgage. They would also be able to refinance it with new loans.

The agreement does not address lowering interest rates on franc-pegged loans as these are regulated by individual banks.