The mortgage account shoots up 1,500 euros more per year

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The cost of loans fuels another surge in the family budget, though deposits still fail to reflect new ECB policies

New scare without the end of summer. Less than two months have passed since the first rate hike by the European Central Bank (ECB) in ten years, when the institution led by Christine Lagarde raised the official price of money by 0.75 points again. Not only do you have to get used to living with a positive interest rate, as has not happened with the Euribor since 2016; but besides that you have to get used to living with high interests. Official rates at 1.25% and Euribor already close to 2%. This innovation means that more is paid for financing (families, companies and the State); and get some money to save. Let’s see when, how much and why.

120 euros more per month in the mortgage

The first effect of the rate hike will be a more expensive mortgage payment than it has been so far. This increase was already noticeable in some of the home loans, which had to be renewed in recent weeks. These loans already take into account the rise in the Euribor, the step prior to the ECB’s decision. The mortgage indicator used to calculate most floating rate mortgages in Spain has gone from -0.5% at the start of the year to 1.9% this Thursday.

As a result of this evolution, the monthly repayment of an average mortgage (145,000 euros over 24 years with a difference of one point on the Euribor) will go from approximately 530 euros to 650 euros in the next revision. A year means an extraordinary expenditure per family of 1,500 euros. Those who have a fixed-rate mortgage cancel any change: they continue to pay the same fee they had entered into. The advantage of this modality is that it absorbs the times of interest rate hikes, although it does not take advantage of years when interest rates are low, as has happened in the past decade.

More expensive financed purchases

Those who took credit on purchases they made last Christmas paid a minimum interest in years for this type of operation: 5.6%. Due to the evolution of the previous crisis, financing became cheaper over the years. That the purchase of a new vehicle, home furnishings, appliances or travel, among many other purchases, was competitive. However, as the ECB’s decision drew nearer, the financing of these operations increased. Six months after Christmas, with the summer in full swing, consumer credit already costs almost 7% (specifically 6.8%) in interest, practically the same level as in 2018.

Deposits… Reimbursed?

Over the past decade, those who have saved money in their current or term accounts have seen how their banks have barely paid them any money because of the profitability of these products. In fact, the commissions resulted in this profitability being technically negative in many cases. Even some large companies have had to pay entities for having money on their deposits. This situation may change from today. That is possible, because it does not seem clear that the return on deposits will grow as fast as, for example, the Euribor for mortgages. However, since the last rate hike in July last year, the interest rate on deposits has not changed. They have not risen yet, despite the fact that some offers from banks with somewhat more attractive deposits are starting to flourish.

Most expensive government debt

The ECB’s decision also means that the state will have to allocate more money to finance the public debt it spends to maintain the Spanish economy. In recent auctions, the Treasury has already had to pay more interest on debt issues under pressure from investors. The cost of the 10-year Spanish bond is already 2.7%. Just three months ago it was less than 1.5%. For this year, the State will spend more than 30,000 million euros in interest, an amount that is expected to rise in 2023 with this new interest rate increase.

Source: La Verdad

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