The rise in interest rates makes mortgage installments soar: how to move with loans and who is better off subrogation

The rise in interest rates makes mortgage installments soar: how to move with loans and who is better off subrogation

Christine Lagarde's speech at the ECB forum in Sintra dampens the hopes of borrowers who were hoping for an end on the horizon for the rate hike. The number one of the European Central Institute said today: «Our work is not finished yet. Barring a material change in the inflation outlook, we will continue to hike rates in July. "The overall impact of the 400 basis point rate hikes decided since last July has not yet fully materialised," added Lagarde.

All eyes are now on the next ECB meeting in July when another hike could come. Experts are already estimating another hike of 25 basis points. Then another 25 basis points will most likely be decided at the September meeting. Indications in this sense also come from the Euribor, the barometer of variable rate mortgages. This index, compared to the ECB's official rate, is always a couple of months behind. Yesterday it was at 3.58%, which is almost half a point less than 4% of the current ECB rate.

What will happen with these new increases? Variable rates will passively undergo increases as has already happened in the past. It means an automatic increase in the installment at the end of the month. To give a practical example, on a mortgage worth 140 thousand euros and with a duration of 20 years, the impact will be around 20 euros per month. However, it must be said that the floating rate has already grown significantly, going from May last year from 0.75% (as a finished rate) to 4.5% of today's best offers (for 80% financing over 20 years and a value of 140 thousand euros of the loan).

On the other hand, the movement of the reference indices of fixed rates is anomalous. The 20-year IRS, the barometer of the fixed term, has not reacted to the recent increases. This index, from last May to today, has remained almost stable at 2.81% despite the one-point rise by the ECB. «It means that the markets expect temporary increases that will not last over time explains Guido Bertolino, business development manager of MutuiSupermarket -. The hypothesis is that the landlines, at least for the next few months, will remain unchanged».

What to do? For the expert, once again, the fixed rate remains to be preferred, whether you want to take out a new mortgage or ask for a subrogation.

Renegotiation and subrogation

The installment of the variables has become heavy and will continue to rise. What to do? «It is possible to request the renegotiation of the contract according to the law – explains Guido Bertolino, business development manager of MutuiSupermarket -. In the presence of a demand of this type, the banks cannot hold back and must start the renegotiation". The expert explains that, however, it is necessary to have an Isee under 35 thousand euros and to be up to date with the payment of the installments. In this case the mortgage is changed from variable to fixed with a precise procedure. The other way is that of subrogation: the best offers today provide for finished rates of around 3.85%.

Who should change? «To those who have a residual capital still high above 80-90 thousand euros – says Bertolino -. In any case, below around 80,000 euros, institutions today do not even evaluate this hypothesis. Furthermore, the subrogation is convenient especially if you have long-term mortgages because the interest rate weighs more ».

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