Convulsive times are coming for those who have a contracted variable mortgage. The Euribor, which is the index with which interest on these products is calculated, shot up to 1.249% in August and threatens to exceed 2% before the end of the year. In other words, any mortgage with a variable rate will have to pay higher installments as soon as their interest is updated.
Paying a higher fee is always bad news. However, with the high inflation that our country suffers (10.4% in August, according to the National Institute of Statistics), the increase in monthly payments can end up compromising the domestic economy of many families. For this reason, from the comparator HelpMyCash.com they advise calculating in advance how much percentage of the salary will have to be dedicated to paying the mortgage if the Euribor reaches or exceeds 2%. Thus, if the mortgaged party anticipates that they will have problems meeting their installments, they will be able to take measures to avoid a possible default.
On the HelpMyCash website, precisely, you can find a free simulator that calculates how much more expensive the installments of a variable mortgage will be if the Euribor rises to 2%. In addition, so that the mortgaged contemplates more pessimistic scenarios, this tool also shows how much the monthly payments will amount to if this index is trading at 3%, 4% or 5%, which are values that were reached during the 2008 real estate bubble.
According to the analysts of this comparator, it is advisable to calculate what percentage of the salary the mortgage payments will eat in the event that the Euribor continues to rise. The mortgaged will keep their debts at bay as long as that percentage is below 35%, which is what the Bank of Spain recommends dedicating as a maximum to paying the mortgage and other loans that are contracted.
For example, let's say that a person receives a net income of 2,000 euros per month and has contracted an average variable mortgage of 150,000 euros, with Euribor interest plus 1% and an outstanding term of 25 years. If your rate is calculated with the December Euribor, which was trading at -0.502% in 2021, the loan installments are 532 euros per month. In other words, this mortgaged person dedicates 26% of his salary to the payment of his monthly payments.
Now, in the event that the Euribor closes the month of December 2022 at 2%, the mortgage payments will rise to 711 euros in 2023. Therefore, they will eat up just over 35% of the mortgaged salary. And if this index remains on the rise and rises to 3% in December of next year, the monthly payments will amount to 792 euros; which represent 40% of the salary. In both scenarios, the client may find it difficult to deal with the loan, because it will exceed the maximum debt ratio of 35%.
What can a mortgaged party do who expects to exceed the 35% ratio if the Euribor rises to 2% or more? In these cases, prevention is better than cure: if the client wants to be calm, it is best to switch to the fixed rate before his interest is reviewed. At this time, a competitive fixed rate of around 2.50% is still available. There are even entities that offer lower interest rates: BBVA, for example, applies interest from 1.95% if the salary is paid directly into the account and home and life insurance are taken out.
Let's go back to the previous example: suppose that the client with a 25-year mortgage of 150,000 euros modifies his interest to go to a fixed rate of 2.50%. In this case, his new installments will be 673 euros per month, which represent 33% of his income. The monthly payments will become more expensive compared to what you paid before, yes, but the change will allow you to be safe from any rise in Euribor.
Another option, in case the client does not want to switch to the fixed rate (or cannot due to not finding competitive offers), is to reduce the differential of the variable mortgage, which is the part that is added to the Euribor to calculate the interest. In this way, the installments will not rise as much when the rate applied to the loan is updated.
At the moment, it is relatively easy to get a variable interest of around Euribor plus 0.80%. For the example above, if the client reduces his spread to these levels, the installments will rise to 695 euros if the Euribor reaches 2%, which translates into an assumable debt ratio of 34%. However, this option has its risks, because if this index rises to 3%, the monthly payments will rise to 775 euros (ratio of 39%).
To switch to the fixed rate or reduce their differential, the mortgaged party can carry out three operations: agree directly with their bank (novation), transfer their loan to another entity (subrogation) or contract a new mortgage to cancel the current one. The HelpMyCash website explains in detail what all these options consist of and which one is the most recommended.
