Guide to know how the increase in the mortgage bill will affect you

2023-05-06 13:53:45

Inflation, interest rate rise, Euribor rise and mortgage review. The perfect Storm. During the last months, the fight of the European Central Bank ECB against inflation has made it completely reverse its monetary policy and abandon its position on the price of money. For months now, the interest rates set by the banking authority that controls Euro policy in Europe have not stopped rising. These increases directly affect any operation that includes interest such as loans, investment funds or mortgages. It is there, in mortgage loans, where the effect of this rise in the price of money.

And it is that during the last years the Euribor, the Majority benchmark for mortgage loans, was at zero or even negative. With the change in the economic cycle and the rise in inflation, this has changed. The Euribor has begun to climb and with it the monthly receipt of the mortgage.

The European Central Bank has been raising rates to 3% in the last year, which has caused the main benchmark for financing home purchases to close February at 3.53%. For an average mortgage of 150,000 euros, it can mean an annual increase of close to 3,500 euros.

I want to buy a house, what do I have to do?

What to do with the mortgage and how does it affect you?

Before running to the bank office and considering more drastic decisions such as subrogating the mortgage to another bank or renegotiating the conditions in the current context Some aspects must be taken into account to know how the rise in Euribor is being affected and what is the best option to avoid the increase in the mortgage bill after review.

What should you do before your mortgage bill goes up?

Depending on the type of mortgage

• Review What type of mortgage do you have and if it is fixed rate o variable: This aspect is essential to know how the rise in Euribor will affect your monthly bill. If the mortgage is at a fixed rate, it is easy to know. In nothing. Fixed-rate mortgages are not affected by market volatility and rising rates. At the time of the mortgage deed, a stable and permanent fixed rate was stipulated between the bank and the client throughout the life of the mortgage. It doesn’t matter if the rates went down or up, you will always pay the same… both when the Euribor was in negative and now that it is at 3%.

• Variable Mortgage: This type of mortgage was the most common for a long time and the interest that is applied during the useful life of the loan is variable according to the interest rate that, at the time of review, has the Euribor. In addition, there are differentials, which is an extra interest that is added to the Euribor. That is to say… if a variable mortgage that is reviewed in March has a differential of 1.5%, the final interest applicable during the current period will be 4.5% (3% of the Euribor plus 1.5% of the differential ).
• Review bonuses: Entities subsidize part of the differential according to the degree of customer involvement with the entity. In other words, despite the fact that the differential is, for example, 1.5%, the customer may end up paying much less depending on the applicable bonuses if they have direct debit payroll, insurance, credit cards or pension plans.

Calculator: How does the rise in the Euribor to 3.5% affect you?

According to the time elapsed since the signing of the mortgage

Variable mortgages are those that will suffer the rise in interest rates and the shot in their receipts, but not all equally or not only according to their difference. There is another factor to take into account. Y is the time elapsed since the signing. How many years ago was the mortgage signed and how many years do you have left to live?

What are the best variable mortgages for February 2023?

It must be borne in mind that it is not the same if the mortgage was signed a year ago, which implies a progressive increase in cost at high levels because it started from a negative Euribor, that fifteen of, let’s say, the twenty have already been repaid. years of the contract, given that the interest is mainly paid in the initial period of the life of the mortgage, so the impact of the rise in the Euribor is much less.

As a general rule, if half the term has already been paid (15 years for a 30-year mortgage) the interest payment is lower and therefore the impact of the rate rise on the receipt would be much less than expected.

What to do then to avoid the rise?

Once you know all these details, you can start negotiating with your bank to improve the differential or study the possibility of changing your variable mortgage to a fixed rate. Another option, that few know about, is to process the subrogation of the entire mortgage to another bank that offers you better conditions than the current one.