The Euribor It has become a nuisance to those mortgaged at a variable rate. The index went from being negative (-0.5 in some months of 2021) to starting to look at 3% already in this later part of the year. This means that the fees to be paid are increasingly higher and increases the financial pressure on families.
A rise in interest rates of 0.75% will not help and will be reflected in the increase in this indicator which usually anticipates increases and explains its growth.
Mortgage interest can be fixed or variable. In the first case, the same interest is paid for the entire term of the loan; In the second, the most common is that the applicable rate is calculated by the sum of Euribor plus the fixed spread.
What makes Euribor increase? This index is European interbank offer rate (The rate displayed in Euro InterBank, in English) and, in general, refers to the rate at which European banks lend money to each other, Banco Santander recalls on its website. This is the type that is also used as a reference for mortgages and is closely related to the reference interest rates of the European Central Bank (ECB).
Euribor usually expects interest rates to rise
If the European Central Bank increases interest rates, then the European interest rate Euribor will necessarily rise, but it is not in line with this decision. The index indicated by 80% of mortgages in Spain tend to expect higher prices for the institutions headed by Christine Lagarde; It can be said that it decreases it and that is why it has already started to increase before the monetary organization acted. It can all be seen in this cycle: the central bank didn’t raise interest rates until July, but the euro-bor has already risen by more than one point since the start of the year.
The third consecutive increase in interest rates
Now the European Central Bank has raised interest rates again at its Governing Council meeting on October 27, after doing so previously also in September. This is the third consecutive increase to put the key reference rate at 2%, the marginal credit facility at 2.25% and the deposit facility rate at 1.5%, since it was initially launched from negative securities.
That rally has already been discounted by Euribor, which threatens to close at an average of 2.7% in October. To find a higher value, you have to go back to December 2008, when it exceeded 3%. From October 2021 to 2022, the applicable interest rate will increase by 3.17 percentage points.
Money that will increase mortgage payments
This increase, for which to review your mortgage according to the value of October, will mean a significant increase in fees, according to simulations conducted by this newspaper. With Euribor in October last year, for a Average mortgage 150 thousand euros At 25 years at Euribor plus 1%, the premium is €533.51. On the other hand, applying Euribor by 2.7%, which is expected to close this month, the fee will rise to 767.12 euros. this be €233.61 more per month, which means €2,803.32 more per year.
Calculate how much your mortgage will rise after the interest rate is raised
The higher the amount, the greater the increase the mortgagee will have to bear. € 890.38 was paid per month with a housing loan of € 250,000 for 25 years and thanks to Euribor plus 1%, the index was in October 2021. With the Euribor In the tenth month of 2022, the share increases to 1278.53. This is 388.15 € per month and 4657.8 € more per year.
Also, for the pawnbroker, there are more conditions to consider. “In general, the less time has passed since the loan was signed, the higher the cost of the monthly installments after the review, because because French fire system (used in Spain), most mortgage interest is paid during the first years of its life,” explains Mikel Riera, Helpmycash expert.
What can a variable rate mortgage do in the face of such bleak prospects? According to the mortgage specialists in comparison, it is better to be safe rather than sorry in this case to try to protect themselves with some help from the bank: “These clients should expect their premiums to rise and speak to their bank as follows: as soon as possible to try to negotiate some measure that Help them cushion the blow.
Among the options that will be evaluated is the possibility to request a change from a variable rate to a fixed rate. But in the event that a fixed rate cannot be assumed either because of their deteriorating financial situation, the bank actually offers a renegotiation to its customers to prevent them from defaulting.