Wednesday, January 26

The latest fall in the Euribor will scratch variable mortgages a coffee a year

After trading for two consecutive months on the rise, the one-year Euribor fell in November. According to the financial comparator HelpMyCash, it has closed the month with a -0.487 percent value, which is lower than that of October (-0.477 percent).

This will be good news for those who have a variable mortgage whose interest is reviewed in the coming weeks, as their monthly payment will be slightly cheaper when the bank updates the applied rate.

The interest on a variable mortgage is calculated by adding a spread (a fixed percentage) to a reference index, which is usually the one-year Euribor.

The value of the Euribor can change every month, so once a semester or a year (depending on what you put in the mortgage contract), the bank updates the interest with the value that this index has registered in the month prior to the review.

Thus, variable mortgages that are revised with the value of November 2021 will have the interest recalculated with that record of -0.487 percent.

And since that Euribor price is below that of a year and a semester ago (-0.481 percent in both cases), the monthly installments of these loans will be cheaper.

Let’s say, for example, that a customer has a average variable mortgage with an outstanding amount of 150,000 euros, a pending term of 25 years and an interest of Euribor plus 1 percent.

If the interest were updated with the value of November, your installments would be cheaper by 40 cents per month, which would be 4.80 euros per year if your contract was updated annually or 2.40 euros per semester if it was reviewed every six months.

The Euribor remains at record lows despite inflation

This drop in the Euribor contradicts the forecast of many banks and macroeconomic experts, who expected it to rise during the last months of the year.

Bankinter’s analysis department, for example, believes that the value of this index will stand at -0.45 percent at the end of 2021.

The argument given to justify these forecasts is that inflation in the euro area has skyrocketed in recent months.

It has been above 2 percent since July of this year and in October it reached 4.1 percent.

According to HelpMyCash, inflation above 2 percent could force the European Central Bank (ECB) to raise its interest rates to lower it and that increase, in turn, could cause the Euribor to trade higher.

However, the ECB has already stated that it does not plan to raise its rates this year, as it believes that inflation will fall below 2 percent in 2022.

Therefore, we will have to wait a few months to see if these predictions are fulfilled and the Euribor remains at historical lows or if, on the contrary, this body is forced to increase its rates and that causes the index to rise.