The calculator to find out if your variable mortgage rises with the increase in ECB rates
A storm is coming for those who have one adjustable mortgageeven more so after the European Central Bank (ECB) has announced an interest rate hike from 0.75% to 2%. This measure, which will be taken to contain the high inflation in the eurozone, will shoot up the Euribor even morewhich is the index used to calculate the interest on variable-rate mortgage loans granted in Spain.
“According to these figures, it is more than likely that the euribor closed october above 2.60% and that it is around 3% in December; something that had not happened since the 2008 crisis (last year it was trading below 0%),” says Miquel Riera, mortgage expert at the financial comparator HelpMyCash.com
According to the comparator, that will significantly increase all variable mortgages to be reviewed in the coming months. On average, its analysts calculate that their quotas could increase by more than 30%, approximately.
What can variable-rate mortgagees do in the face of such bleak prospects? According to the mortgage specialists of the comparator, it is better to be safe than sorry: “these clients must anticipate the increase in your installments and talk to your bank as soon as possible to try to negotiate some measure to help cushion the blow”.
Calculate how much the fee will increase
In the first place, the client must know what future awaits him when his variable mortgage is reviewed. To do this, he has to calculate How much will the installment increase when your interest is updated with the Euribor on the rise?. The mortgaged party can make an appointment with the bank to do the simulations or can calculate it on their own with online tools such as the Variable Mortgage Review Simulator by HelpMyCash.
The fees of the variable mortgage will rise more or less depending on several factors: its amount, its term, its differential (the part that is added to the Euribor to calculate the interest), the contract date… “In general, the less time has passed since the signing of the loanthe monthly payments will become more expensive after the review, because due to the French amortization system (used in Spain), most of the interest on a mortgage is paid during its first years of life”, explains Riera.
For example, let’s say a person hired a company a year ago. average variable mortgage with an amount of 150,000 euros, a term of 25 years and an interest of Euribor plus 1%, revised annually with the value that this index registers in September. At the moment, this loan has a fee of about 532 euros per month, but as soon as your interest is updated, their monthly payments will be about 721 euros; 35% more expensive (about 2,265 euros more per year).
What to do if you can afford the new fee
Secondly, the mortgagee has to assess whether he will be able to pay his new installment without problems. The ideal, according to the Bank of Spain, is that the new monthly paymentadded to that of his other credits, do not exceed 35% of your monthly net income. For the previous example, the client could keep his debts at bay if he received a net salary of 2,060 euros per month (on his own account or jointly with a co-owner).
If the mortgaged party can afford this rise, they have more room to maneuver to cushion the blow that the rise in the Euribor will entail. “If you want to stick with variable interest, you can lower your spread by negotiating with your bank or the transfer of the mortgage to another entity. That way, when your contract is reviewed, the interest will be lower and the monthly payments will not become so expensive”, they add from HelpMyCash.com.
On the other hand, if the client prefers to get rid of the Euribor, can try to go to the fixed rate, either through an agreement with your bank or with a change of entity. Thus, your fee will become stable and will not become more expensive if the Euribor rises. In this case, yes, you should hurry, because banks are raising their fixed rates and it is increasingly difficult to get a competitive price. According to HelpMyCash, a fixed rate of 3% or below can still be considered attractive.
In case of not getting an attractive fixed interestthe mortgagee can consider the option of moving to a mixed type. In this way, you can enjoy a fixed interest for the next five, ten or 15 years (depending on the offer of each bank); generally lower than if it were to go directly to the fixed rate. “It is a less secure optionbecause the interest will become variable once that period has elapsed,” says Riera.
What to do if you can’t pay the new fee
There will be other clients, however, who will not be able to face the new installments of their variable mortgage with 35% or less of their income. “Those who belong to this group must make an appointment with your bank as soon as possible to agree on a solution that allows them to pay the monthly installments without experiencing financial hardship: extend the term so that the installment does not rise as much, reduce the interest, apply a total lack (not pay installments for a while) or partial (pay only interest for a while)…”, they recommend from HelpMyCash.com
It is good to know that some of these mortgaged have legal protection. For example, if a family unit earns up to 24,318.84 euros gross per year and must dedicate 50% or more of their income to paying the new installments of their variable mortgage, they can take advantage of the Code of Good Banking Practices. “Your entity, in these cases, is obliged to offer you a partial grace period of five years, lower the interest to Euribor plus 0.25% during that period and extend your return period to 40 years,” they warn from the comparator.
The banking and the Government of SpainIn addition, they are about to close an agreement to expand this Code with a new measure. This solution will go through extend the term for which the fee rises by 30% or more after the review of their variable mortgage, provided that it was contracted from 2012. In principle, those mortgaged who charge up to 24,318.84 euros gross per year and who have to dedicate 40% or more of their income to pay the new monthly payments.
It’s time to check the accounts
In addition to trying to renegotiate the terms of the mortgage, it is advisable for the client to review their finances and identify expendable expenses that can be eliminated: the commission for maintaining a bank account, precooked food, excessive purchases… Tightening the belt in certain aspects will give the mortgagee more margin to pay their debts or to face other more necessary items.
As a last resort, if the mortgagee believes that you will not be able to pay your mortgage payments In any case, it is recommended that you sell your home before the bank repossesses it. Thus, you will get more money (repossessed apartments are auctioned for a very low value) to pay off your mortgage debt and pay the entrance of a cheaper property or a rent in a more affordable area.
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