Home, sting on mortgages: is the fixed or the variable worth it?

Today, December 15, the meeting is held ECB and now it certainly looks like a new one rate increase which, according to expectations, could rise this time by 50 basis points, with inevitable repercussions on the installments of variable mortgages. Following the new increase, the monthly installment could increase by almost 35 euros in the coming months, with an overall increase of around 180 euros compared to the beginning of the year (+39%).

The simulation

“The Euribor, the reference index for variable rate mortgages, tends to change on the basis of ECB rate expectations, but it is not certain that it does so to the same extent; therefore, to understand how the borrowers’ installments will vary in practice, we will have to wait to see how the index will move with respect to the decisions of the Central Bank”, he explains Ivan CrestoManaging Director of financing products Easy.it. “In any case, the impact of the increase will be different for each borrower based on a number of factors, including the outstanding loan amount and the number of outstanding installments; the advice for those who have a variable mortgage is to establish the maximum threshold beyond which the installment could become unsustainable and contact your credit institution or a consultant to identify the best solution based on your characteristics”.

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

The starting rate (Tan) subscribed in January and used in the analysis is equal to 0.67%, corresponding to a monthly installment of 456 euros. If in the first part of 2022 the installments grew only slightly (+13 euro from January to June), starting from July the mortgage indices began to rise significantly and, after the three rate increases by the ECB , in December the installment reached around 602 euros, i.e. almost 150 euros more than the initial one.

If the ECB were to confirm a new increase in the cost of money of 50 basis points, assuming that the Euribor grows in a similar way, the monthly installment of the borrower would rise, in the coming months, to around 636 euros, i.e. almost 35 euros in more than today and 180 more than at the beginning of the year (+39%). If, on the other hand, the increase were higher and equal to 75 basis points, the installment could even reach around 653 euros (more than 50 euros more than today, 197 euros more if compared to that of the beginning of the year).

Fixed or floating rate?

In November, the Eurirs index, the parameter relating to fixed-rate loans, showed a sharp drop compared to October. Translated into figures: in the case of a taxpayer who, on 1 December, had taken out a 30-year fixed-rate mortgage of 150 thousand euros (with a 1.5% spread), the tendential fixed rate would have been 675 euros. A sum lower than the 716 euros of 1 November (under 36 mortgages, loans released only for December: how they work). (here we talked about fixed and variable rate: which is better).

Why are mortgage rates rising?

The increase in variable rates is linked to the choices of the European Central Bank. To curb inflation, which today hovers around 12% (whereas it should be between 2 and 3%) it is forced to raise mortgage rates. Not being able to increase the fixed ones, as they are fixed, the action has repercussions on the Euribor, the parameter that precisely defines the floating rate.

From here the scenario is not exactly rosy. If the ECB, as assumed, maintains its program which envisages gradual rate increases, the Euribor will inevitably continue to rise in the coming months, producing harmful effects on variable-rate mortgages.

“This opens up another dangerous front: that of late payment of installments by families in difficulty, crushed by the energy emergency, by skyrocketing inflation and now also by increasingly expensive and difficult to pay mortgages”, he commented the president of the Codacons Charles Rienzi.