Euribor rates continue to rise at a rapid pace in October and it is only with data from the first half of the month that it is certain that the average will be well above the September value. The revised home loan contracts will increase (much) next month. Find your situation in 12 simulations
inflation [na zona euro] may be more persistent and therefore the interest rate needed to contain it may be higher than economic estimates and financial markets are currently assuming.”
The statement appears in the latest economic bulletin from De Nederlandsche Bank and is yet another warning of what could happen at the next meeting of the European Central Bank (ECB) in Frankfurt in 10 days. The certainty is that Christine Lagarde and other members of the Board of Directors will decide on a new rate hike. The question is how much the climb will be: 0.5 point? 0.75 points? Most?
If the prediction of De Nederlandsche Bank comes true, the increase will not be small. Looking at the Euribor rates, it is clear that the markets are already expecting a significant increase.
The six-month Euribor, the most widely used mortgage in Portugal, recorded an average value of 1.596% in September. But if you include the first half of October, it goes to 1.901%.
The movement is the same in the 12-month Euribor: from an average of 2.233% in September, it is already 2.561% in October.
No one really knows how far ECB interest rates will go.
Currently, the main rate is 1.25%. But the Organization for Economic Co-operation and Development (OECD) worked at a rate of 4% in its latest forecasts. And a few days ago, the governor of the Central Bank of Belgium said his bet is that they would go above 2%, but he also said it wouldn’t be a surprise if the ECB “would go above 3% at some point.” have to go”. point.”
The only certainty is that rates will continue to rise. The result is simple and in many cases painful.
Home loan holders whose contract will be revised next month can count on a new installment increase. And if for small loans the increase can be slightly more than 25 euros, for contracts where the amount owed is greater, the increase in the installment amount can be more than 229 euros.
HOW MUCH HOUSING CREDIT WILL INCREASE IN NOVEMBER
30-year bond with 1% spread
| Loan of 25 thousand euros | ||||
| Euribor 6 months | Euribor 12 months | |||
| is paying | 78.77 | is paying | 74.94 | |
| Go pay | 104.7 | Go pay | 113.11 | |
| increase | 25.93 | increase | 38.17 | |
| Loan of 50 thousand euros | ||||
| Euribor 6 months | Euribor 12 months | |||
| is paying | 157.53 | is paying | 149.88 | |
| Go pay | 208.14 | Go pay | 226.23 | |
| increase | 50.61 | increase | 76.35 | |
| Loan amount: 75 thousand euros | ||||
| Euribor 6 months | Euribor 12 months | |||
| is paying | 236.3 | is paying | 224.82 | |
| Go pay | 312.21 | Go pay | 339.34 | |
| increase | 75.91 | increase | 114.52 | |
| Loan amount: 100 thousand euros | ||||
| Euribor 6 months | Euribor 12 months | |||
| is paying | 315.07 | is paying | 299.76 | |
| Go pay | 416.28 | Go pay | 452.46 | |
| increase | 101.21 | increase | 152.7 | |
| Loan amount: 125 thousand euros | ||||
| Euribor 6 months | Euribor 12 months | |||
| is paying | 393.83 | is paying | 374.7 | |
| Go pay | 520.35 | Go pay | 565.57 | |
| increase | 126.52 | increase | 190.87 | |
| Loan amount: 150 thousand euros | ||||
| Euribor 6 months | Euribor 12 months | |||
| is paying | 472.6 | is paying | 449.64 | |
| Go pay | 624.43 | Go pay | 678.69 | |
| increase | 151.83 | increase | 229.05 | |
How to deal with rising interest rates?
With Euribor rates and monthly mortgage installments accelerating, personal finance specialists are advising anyone who is in difficulty (or expects to be in difficulty) to contact their bank to renegotiate the contract.
There are several options, but the most advantageous are a renegotiation of the ‘spread’, the margin that the bank charges, or an extension of the loan term.
In the first case, if a loan of 150 thousand euros is evaluated over 30 years, with a ‘spread’ of 1%, if this ‘spread’ is reduced to 0.5%, the savings in the monthly installment can exceed 30 euros per month.
When the loan term is extended, the savings are even greater. For the same loan, an extension of the term to 40 years would allow a saving of more than 100 euros per month.
Another option, for those who have savings that they can move, is to pay off part of the loan early. Again, for the same loan of 150 thousand euros, the amortization of say 30 thousand euros would allow a saving of almost 100 euros per month. However, this depreciation has an associated penalty that can go up to 0.5%, which in this case would correspond to a one-off cost of 150 euros.
What is the government preparing?
In fact, early repayment penalties are one of the measures in force that the government wants to change. The Ministry of Finance has already announced that it will suspend this fine next year to help families with home loans.
Suspending this fine is an incentive for those who have savings and want to repay part of the loan in order to reduce monthly payments. On the other hand, when a debtor finds a better solution for mortgages with a competing bank, the transfer of his credit to the other bank always presupposes the amortization of the first loan, which is currently subject to this penalty.
In addition to this measure, the government is also preparing legislation to allow home loan holders to extend the term of their loan.
As part of the state’s 2023 budget, the government has also decided that taxpayers with home loan contracts will be able to enjoy a monthly IRS withholding rate below the rate set by law next year. In practice, it will be possible to deduct monthly at the rate directly lower than the rate that would be deducted without this new rule.
However, this measure has a lower monthly impact, and if the taxpayer files the income tax return in 2024 on the income they received in 2023, they will get a lower tax refund because they withheld less IRS throughout the year, or maybe even you tax. must pay.
In the context of the Social Dialogue Agreement signed between the government and the social partners, it was also stipulated that an assessment would be made of the impact of the increase in housing costs on the family budget, in the sense of building measures that have the same effects, until the end of the year 2022.
Portrait of home loans in Portugal
index
At the end of 2021, the most common indices were the 6-month Euribor, in terms of the number of contracts, and the 12-month Euribor, in terms of outstanding balance.
The 6-month Euribor was the index for 40.5% of the contracts and 29.1% of the outstanding balance, while the 12-month Euribor was the index for 28.1% of the contracts and 40.4% of the outstanding balance.
The 3-month Euribor continued to represent less than a third of the home loan portfolio.
‘spread’
The average spread of the portfolio at the end of 2021 was 1.21 percentage point.
Rate
At the end of 2021, floating rate contracts represented 93% of the number of contracts in the portfolio and 91.1% of the outstanding balance.
Deadline
Most contracts at the end of 2021 (64.4%) had an initial term of between 25 and 40 years, with an emphasis on terms between 35 and 40 years (27%) and between 25 and 30 years (24.2%) . The remaining term of the contracts was 21.5 years at the end of 2021.
The average term of the contracts in the portfolio as at 31 December 2021 was 33.5 years.
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