three examples for scrapping the variable – Corriere.it

Those who have started a variable rate mortgage in recent years, and have not thought of replacing it when fixed rates were still at their lowest, today must deal with installments increased significantly: between 25 and 40% for loans started between 2015 and 2021, or in the six years in which the Euribor, the parameter used to calculate the cost of the installment, remained stable in value negative. In recent weeks, the quarterly Euribor, considered the benchmark for mortgages, has risen by hooking up to the ECB rate, which in turn has risen from zero to 1.25. A not very happy prospect for these borrowers comes from the advances according to which Frankfurt will implement two more maneuvers to raise the cost of money by 125 cents between now and the end of the year, with inevitable repercussions on index-linked loans.

The mechanism and the calculations to be made

If it is difficult to sustain the increases, it is possible, with a careful evaluation of the proposed conditions, to substitute the variable mortgage now by replacing it with a fixed one, although certainly in a much less advantageous way than last year. Not much is saved on the installment but at least the risk of further increases is blocked. In addition to this, another potential advantage of the operation must not be overlooked: when rates fall again, the surrogate loan can be replaced again with a loan at more advantageous conditions. Nothing strange, in recent years the banks have become accustomed to dealing with serial subrogators.
We tried to calculate, under the conditions present on 27 September on the broker’s website, mortgageOnline.it, what would entail the subrogation of three different variable loans for departure date and original amount, to show that the transition to the fixed rate at least puts the installment in a safe place compared to the foreseeable increases between now and the end of the year.
In the first case, the mortgage (250 thousand at 30 years for a house in Naples) was started at the end of 2012 at 1.72% (a rate that at the time was only given to prime customers). The installment in November will reach 1,058 euros, from the initial 890, and, assuming a further increase of 125 cents, will rise in the first months of 2023 to 1,245. By substituting, the same installment scheduled for November would be paid, remaining calm until the end of the financial storm.

P.for the second loan (200 thousand euros at 25 years) let’s assume a purchase in Rome made two years ago at the then current rate of 0.7%. The next installment of 966 euros will be more expensive by 194 euros than the original one and is likely to rise in January 2023 to 1158 euros. With the subrogation it is possible to stay under 1,000 euros. Finally, the third operation concerns a 2016 mortgage at 1% for 300 thousand euros in Milan. From € 1,131 the installment has now risen to 1,434 and in January there is a risk of having to shell out € 240 more. With the subrogation, the installment crystallizes depending on the bank between 1,400 and 1,500 euros. However, it must be considered that not all ongoing variable mortgages are risky to the same extent: the most significant increases in the installment are recorded 1) on loans started at a lower rate: an increase of one point on a mortgage started at 1% doubles the amount of the interest share, on a mortgage originally at 3%, one point increases the interest share by a third; 2) on mortgages for which less than half of the installments have been paid; every month the weight on the installment of the interest rate decreases and even an increase in rates ends up having less impact.

The other options

If the subrogation is excluded, the ways to limit the damage if you are unable to cope with the risk of further increases in the installment are very narrow: if the loan contract provides for it, it is possible to consider the opportunity to make a transition to the fixed one or to extend the duration of the loan. If the contract does not provide for it, you can still ask the bank if it is possible to carry out one of these operations: the institution is not obliged to accept but if it does, there are no costs associated with the modification. Another possibility is to resort to the total or partial suspension (limited to the interest rate) of the loan. Also in this case the loan agreement can provide for it or the bank can grant it. Finally, there is the possibility, if the conditions are met, to request recourse to the public fund managed by Consap for the suspension, up to 18 months, of first home loans.. In this case the bank, in the presence of the requisites, cannot impose obstacles. But the suspension of the loan, from the bank or thanks to Consap, is in any case a last resort to be used only if you are really in difficulty and only if the financial problems are presumably temporary.