A recent report by the Bank of Spain, on household savings accumulated during the pandemic, concludes that a “modest, but growing part of said savings since 2021” was used to repay housing loans.
One of the reasons, the report points out, was the increasing cost of variable mortgages. With the rises in interest rates between 2022 and 2023, early repayments proliferate and are prioritized, in order to avoid making the Euribor-referenced installments more expensive.
The Government eliminated the commissions for early repayment of variable mortgages until December 31, 2023, by Royal Decree-Law 19/2022. This is a favorable option, say experts from the comprehensive home platform Housfy, to reduce the amount of the installments and not see such serious effects due to the rising price of the Euribor.
For those who do not have a good financial cushion or wish to allocate it to other projects, an equally valid alternative is to go from variable to fixed interest, a maneuver also free by the same Royal Decree-law until the end of 2023 as long as the bank does not suffer a loss financial.
For contracts subject to the Mortgage Law of 2019 (after June 16, 2019), the bank may charge a compensation of up to 2% for early repayment of a fixed mortgage, provided that the commission does not exceed the financial loss that the bank suffers.
However, as long as European Central Bank interest rates (currently 4%) remain higher than interest on mortgages already arranged, the repayment would produce a capital gain for the bank and therefore it would not be legal to charge no compensation for interest rate risk.
When in 2022 families rushed to advance the debt of their variable mortgages, the market also did not offer them any remuneration for their savings through other liquid assets, such as fixed-term deposits. The money saved was losing value with inflation and families had an easy time making decisions.
Today, we find in the market deposits with returns close to 3% and remunerated accounts of around 2.5% APR.
Among the factors to assess whether it is worth amortizing a mortgage, it is worth considering the interest that remains to be paid. With the French repayment system, the one used by most banks in our country, a holder pays more interest at the beginning of the loan and begins to repay more capital later.
Those who are in the final stretch of their loan, and especially if it is at a fixed rate, should consider whether to use that money to settle their debt with the bank or invest it in assets that yield a higher yield than the amount of interest that are left to pay.
