Curves are coming for those who have a variable mortgage. The Euribor, which is the index used to calculate the interest of these products, will close the month of October with a value higher than 2.6%; the highest since 2008. The holders of these loans, therefore, will have to pay appreciably more expensive installments if the rate applied to them is revised with the last price of this reference.
For those mortgaged with review in the coming months, the future looks even bleaker. At its meeting today, the European Central Bank has raised its interest rates from 1.25% to 2%. And when this increase occurs, the Euribor will skyrocket. According to analysts from the financial comparator HelpMyCash.com, its value could reach 3% in November or December of this year.
Those who have a variable rate mortgage, therefore, should start preparing for a future increase in their installments. According to the experts of the comparator, "it is advisable to calculate in advance how much the monthly payments will rise and, in case of foreseeing problems to pay them, talk to the bank as soon as possible to try to agree on some measure that cushions the blow".
The client has two ways to find out what installment he will pay when the interest is revised with the new Euribor value. The first is to make an appointment with your bank and request that the corresponding simulations be carried out. And the second, if the mortgaged party prefers to save time, is to use free online tools such as HelpMyCash's variable rate mortgage review simulator.
The monthly installments of the variable mortgage will become more or less expensive depending on its amount, its term, its differential and the contracting date. For example, let's say that a person contracted his loan a year ago, with an original amount of 150,000 euros, a term of 25 years and an interest rate of Euribor plus 1%. If this product is reviewed annually with the September Euribor, the installments will rise from 532 to 721 euros per month, which represents an increase of 35%.
If the mortgaged party enjoys a good economic situation and can assume this increase without problems, they will have more room for maneuver to refinance their loan and soften this increase in cost. For example, you can switch to a fixed or mixed rate or to lower your spread. These operations can be agreed with the bank itself (novation) or can be achieved by transferring to another entity (subrogation) or contracting a new mortgage loan.
On the other hand, if the increase in the installment will generate a significant economic problem for the mortgagee, they should talk to their bank as soon as possible to try to find a solution. In these cases, the amount of the monthly payment can be reduced by extending the term or applying a grace period (not paying installments or paying only interest for a time), for example.
In any case, HelpMyCash considers it more than advisable that the client also review their accounts and look for possible expendable expenses: bank account maintenance fees, subscriptions to unnecessary services, etc. Eliminating these superfluous expenses will give the mortgagee more margin to face the rise in their installments.
