February 6, 2023

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Is fixed or variable better?

The meeting takes place today, December 15th European Central Bank And now it definitely looks like new rate increase Which, according to forecasts, this time may rise by 50 basis points, with The inevitable repercussions on premium variable rate mortgages. After the new increase, the monthly installment may increase by about 35 euros in the coming months, with a total increase of about 180 euros compared to the beginning of the year (+39%).

simulation

The Euribor, the benchmark for variable-rate mortgages, tends to change based on the European Central Bank’s interest rate expectations, but it is not certain that it does so to the same extent; Therefore, to understand how borrowers’ premiums differ in practice, we have to wait and see how the index will move in relation to central bank decisions,” he explains. Evan ChristoManaging Director of Finance Products Easy.it. In any case, the effect of the increase will be different for each borrower based on a number of factors, including the amount of the loan outstanding and the number of installments due; the advice for those with a variable rate mortgage is to determine the maximum beyond which the installment can become unsustainable and to contact the private credit institution You or a consultant to determine the best solution based on your characteristics.

For analysis, a A variable interest loan of €126,000 over 25 years signed in January 2022analyzing how the premium has grown since the beginning of the year and how it could rise further in the coming months assuming two scenarios: an increase in Euribor (reference index for variable mortgages) by 0.50% and one of 0, 75% .

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The starting price (Tan) written in January and used in the analysis is equal to 0.67%, which equates to a monthly premium of €456. If the installments increased slightly in the first part of 2022 (+13 euros from January to June), then from July the mortgage indices began to rise significantly, and after the three interest increases by the European Central Bank, the installment in December reached about 602 euros, almost 150 euros more than the initial amount.

If the ECB confirms a new increase in the cost of money by 50 basis points, assuming that Euribor grows in a similar way, the borrower’s monthly payment will rise, in the coming months, to about €636, roughly €35 more than today and 180 more than at the beginning of the year (+39%). On the other hand, if the increase is higher and equal to 75 basis points, the premium could amount to around 653 euros (50 euros more than today, 197 euros more if compared to the beginning of the year).

Fixed or floating rate?

In November, the Eurirs Index, which is the benchmark for fixed-rate loans, showed a sharp decline compared to October. Translated into numbers: in the case of a taxpayer who, on December 1, took out a 30-year fixed-rate mortgage of €150,000 (with a spread of 1.5%), the inclined fixed-rate would be €675. An amount of less than 716 euros on November 1 (under 36 mortgages, loans issued only for the month of December: how it works). (Here we talked about fixed and variable pricing: which one is better).

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Why do mortgage rates rise?

The increase in variable interest rates is linked to the choices of the European Central Bank. To curb inflation, which today hovers around 12% (when it should be between 2 and 3%), it is forced to raise mortgage rates. Not being able to increase fixed items, since they are fixed, the action has ramifications for Euribor, the parameter that precisely determines the float rate.

From here, the scenario is not entirely rosy. If, as it is supposed to, the ECB maintains its program that envisages gradual interest rate increases, Euribor will inevitably continue to rise in the coming months, with adverse effects on variable rate mortgages.

“This opens up another dangerous front: those delays in the payment of installments by families in difficulty, crushed by the energy emergency, massive inflation and now also due to the high cost of mortgages and the difficulty of paying them,” the Prime Minister commented. codacon Charles Renzi.