Almost 200 euros per month and more than 2,000 euros per year. According to the financial comparator HelpMyCash.com, that is the amount that those mortgaged at a variable rate will have to pay more if the interest is reviewed in the coming months. The reason? The escalation of the Euribor, which is the index with which the interest on variable mortgages is calculated. Its value, triggered by the rate hikes of the European Central Bank, is on track to touch 2.20% in September and reach 3% in December; the highest records since 2009.
Increase of almost 200 euros per month and more than 2,000 euros per year
Faced with these poor prospects, customers with variable mortgages have two paths open to them. The first, resign themselves to paying a much more expensive fee than the one they paid until now. And the second, more advisable, is to try to cushion the blow by refinancing the loan, either to move it to the fixed rate (to pay a stable fee) or to lower the differential (so that the monthly payment does not rise as much).
Change the variable mortgage to a fixed mortgage
The first option is the most prudent. If the client refinances his mortgage to move to a fixed rate, his installment will become stable. In other words, it will not become more expensive no matter how much the Euribor rises in the future. Until the review, yes, the mortgaged will have to face a somewhat higher monthly payment, although it will not take long to pay if the forecasts are met.
Let’s say, for example, that a person has a variable mortgage at Euribor plus 1%. If the interest is revised with the September Euribor, right now a rate of 0.508% (1% – 0.492%, the value of the index in September 2021) is applied. If you go to the fixed rate, the interest you will get will be between 2.50% and 3%, which is the average price currently offered by banks for this modality.
In the very short term, as can be seen in the example, the interest on the mortgage will be somewhat higher with a fixed rate, so you will pay more expensive installments. Now, if the client chooses to continue with a variable interest and the contract is revised with the value of the Euribor of September 2022 (around 2.20%, if the forecasts are met), his interest will rise up to 3 ,twenty%. That is, he will pay more than if he changed to a fixed rate. In addition, if you decide to carry out this modification, you will be sure to protect yourself against any future rise in the Euribor.
From HelpMyCash, yes, they recommend hurrying to make this change, because banks are raising their fixed rates. At the moment, you can still find attractive offers with interests of less than 3% or up to 2.50%, but it is very likely that they will disappear in a few weeks or months.
Fixed rate mortgage 2.29%
For example, Openbank offers interest from 2.29%, in exchange for the customer directing their income, taking out the entity’s home and life insurance and subscribing for gas and electricity supplies with Repsol.
CHANGE MORTGAGE TO OPENBANK
With a reduction of the differential
There is the possibility, however, that the Euribor will fall again in the 20 or 30 years that the term of a mortgage lasts. In this scenario, switching to the fixed rate might not pay off (although it would still be a safer option), because the installments would not be cheaper due to the drop in this index.
If the client wants to stay with a variable interest because he believes that the Euribor will go down again, he has the option of reducing his spread, which is the part that is added to this index to calculate his interest (if his variable rate is Euribor plus 1 %, the differential is that “1%”). In this way, the fees will become less expensive when the mortgage is reviewed in the coming months, because the rate applied will be somewhat lower. And if the Euribor falls again in a few years, you will be able to enjoy even cheaper monthly payments.
Right now, banks are trying to lure their customers into variable rate mortgages because they hope to make more money on them. Therefore, it is not difficult to find spreads of less than 0.80% or 0.70%.
BBVA, for example, offers a variable interest rate from Euribor plus 0.60%, in exchange for the mortgagee directing their payroll and taking out home and life insurance with the entity
CHANGE THE MORTGAGE TO BBVA
However, before carrying out this modification, it is important that the client assesses the risks associated with having a variable interest. If the Euribor continues to rise, his quotas will continue to rise, which can cause economic problems. It is only advisable to make this change if the mortgaged person charges enough to face significantly more expensive monthly payments.
Three ways to refinance the mortgage
1 – The Novation
Both changes can be carried out in three ways: with a novation, with a creditor subrogation or with the contracting of a new mortgage. The first option, the novation, consists of agreeing the modification with the bank with which the loan is held. In this case, the client will have to bear the cost of the appraisal of their home, which costs about 300 euros, and the commission for novation, which usually costs between 0% and 1% of the outstanding capital.
2 – Subrogation of creditor
The credit subrogationr, on the other hand, consists of transferring a mortgage to a different bank that is willing to assume it and carry out the aforementioned modifications. The cost is similar to that of the novation: the mortgaged party must pay the appraisal of their home (about 300 euros) plus the commission for subrogation charged by their current bank, whose cost can be between 0% and 1% of the amount that is pending.
3 – Take out a new mortgage
As for the third option, it consists of take out a new mortgage, with a fixed interest or a lower differential, to cancel the current one. It is an operation with higher associated expenses: you have to pay the appraisal of the home (about 300 euros), the possible commission for opening the new loan (banks do not usually charge it), the commission for early repayment of the old mortgage (between the 0% and 1% on the outstanding capital) and its registration cancellation expenses (about 1,000 euros).
According to HelpMyCash, the ideal is to explore all three options. The client must request a novation from his bank and proposals for subrogation or a new mortgage from other entities. In this way, when you have several offers on the table, you can do the numbers to find out which one will pay off the most in the long run, taking into account what you would pay with each entity in interest and in the expenses associated with the modification.