Interest rates will continue to rise and many are wondering how to keep their credit term from getting more expensive
Although indirectly, inflation will also make mortgages more expensive. The most important measure to counter this will be the one that has an impact on the wallets of those who have taken out credit at variable interest rates. Because the ECB raises interest rates. And with that, the references on which mortgages are provided are also growing. The Euribor reached 1.25% in August, the highest level in the past ten years.
Experts remember that it is normal to have interest rates between 1% and 2%. The current prices are not ‘expensive’ due to the usual banking tone. But due to the jump in the Euribor, the monthly amount for the average Spanish mortgage is about 125 euros more expensive.
Write off principal
There are two solutions to prevent monthly mortgage payments from growing proportionally with the interest rate without changing banks, and both require an adjustment of the repayment term. For example, Jesús, who has applied for a mortgage loan of 50,000 euros over 12 years, is considering paying off part of what he has left to pay it off, leaving his term unchanged. Depreciation is always financially interesting. But you have to take two things into account: the commissions that the bank will charge and the tax credits where you may be eligible. Especially if the credit belongs to a couple, the income tax deduction may mean that at current rates it is not worth paying some or all of the debt.
Extend the run time
Another option is to extend the repayment term of the credit. For example, those with a 25-year contract will be paid out in 30. That would absorb the impact of a higher interest rate on the monthly amount. It is an inadvisable option as it makes credit more expensive in the long run. But it depends on the economic capacity of each family. For someone who is overwhelmed, this change can be effective.
family loan
There is another way out that few people think about: the family loan. It has two advantages: it can be granted at zero interest and you can also take advantage of the existing tax credit. You’ll need to find someone who has the solvency to cancel all or part of the mortgage, but it’s an option that can get you out of trouble.
From variable to fixed
Even without leaving the entity with which the mortgage was taken out, it is possible to carry out a novation, that is, a change in the credit terms. The current situation, coupled with gloomy forecasts for the rest of the year and the coming year, has led to an increasing number of debtors being interested in changing the mortgage type. Those who had taken out a floating rate may be attracted to change it to a fixed rate due to the expectation of a continued rise in rates and before it occurs.
The 12-year Euribor, which is used as a reference for mortgages, went from 1.73% to 2.46% in August. The market has been expecting interest rate hikes and now it is reasonable to offer fixed rate loans at 3% as this year and next year it is expected to rise to 2% and 2.2% and then be more or less stable remain around 2%, indicates the bank.
Experts warn that you should read the fine print first to make sure fines and commissions don’t exceed the estimated profit in that novation. Every decision we make now will be diluted in credit time. Because in 10 or 20 years a lot of things will happen. In addition to the interest, the decision will also depend on the moment of credit we are in. The change may make sense at the beginning, when the interest is amortized, and not at the end.
surrogacy
A final option in the mortgage savings quest is to change banks. The subrogation assumes the cancellation of the credit in one entity to contract it with another offering better terms. According to the INE, 2,400 subrogations were closed in June, 46% less than in June last year.
This process entails various costs: from the commission of the bank with which the product was originally taken out, to notary fees. The latter are for the account of the second entity, but take this into account when making a bid. While it assumes a savings, a few years ago it made more sense for signed loans up to 5%.
Fixed or variable? The Difficult Dilemma
“For most people, a mortgage is the largest financial product of their lives. That’s why we need to pay attention to it,” said Enrique García, spokesman for the OCU. The first recommendation he gives is not to make hasty decisions because of a temporary situation for a loan of two or three decades in which everything can change radically. In fact, nobody predicted five years ago that interest rates would fall into negative territory.
“It is not easy to make general recommendations, because each case has its specifics. The most important thing is to find out, compare offers that must always be requested in writing and be very clear about the obligations that will be taken in case there are bonus elements,” he stresses, stressing that online entities and those with less presence in each area are usually those that offer the most favorable conditions to gain market share.
Future expectations play a crucial role in the decision. Not in vain, several banks consulted by this newspaper acknowledge that, contrary to what might be expected, the demand for fixed-rate loans in recent years, which stood at 82% in 2021, has been reversing in recent weeks. is.
To advise citizens, the OCU has designed three scenarios for the coming years. The first estimates an increase in Euribor to 1.5% this year with a stabilization at 2% for the remainder of the credit term. The fixed interest rate would mean a saving of more than 4,000 euros on a mortgage of 100,000 euros over 15 years. A more likely scenario is that of a larger increase in the Euribor – to 2.5% in 2023 – followed by gradual reductions to a minimum of 0.5% and then stabilizing between 1% and 2%. In that horizon with peaks and valleys, the fixed and the variable band.
A third scenario characterized by a rapid increase to 2.5% in 2023 and an intense decrease, with stabilization from 2028. Here the variable would be 1,300 euros cheaper than the fixed.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
