The impact of the rapid rate rise in recent months on mortgages not only depends on the interest but on the life of the loan. In some cases, the increase in the installments payable to the bank is up to 24 times higher at the beginning of the life of the loan than when it is about to end, as can be seen in the graph.
CaixaBank has calculated the increase of a monthly note for a standard mortgage for an amount of 150,000 euros for 25 years depending on the moment in which the increase occurs. For this, it has calculated a three-point increase in the Euribor. This is what happened about last month with mortgage reviews.
As can be seen in the graph, if the loan is in its first year of life, the monthly increase for the client will be 217 euros per month. Just over 2,600 euros per year. But if this increase occurs when there is only one year left to repay the mortgage loan in its entirety, the increase will be only 9 euros. A little more than 100 euros a year.
The Euribor is the most common indicator for calculating mortgages. Financial advisors always recommend, as far as possible, carrying out mortgage repayments in the initial phase of the loan since this is when the greatest interest payment reduction is achieved, since it is the time in which a greater amount is paid. .
Within each mortgage payment there is a part that is used to amortize the loan (reduce the volume of the debt) and another part to pay interest to the bank in exchange for the money borrowed. At the beginning of the life of the mortgage, the interest payment is greater than the amortization payment. This process is reversed over the years until at the end of the period hardly any interest is paid.
For this reason, interest rate increases have much less impact on the family economy when there is little left to pay the loan than at the time it starts.
The Euribor is currently slightly above 4%. Analysts’ forecasts are that at some point in the second or third quarter of next year mortgages will begin to decline. The reason is that the Euribor will be below the level it had a year before. Although they will be small quota cuts (the differences in the Euribor are expected to be only a few tenths) it will be a change with respect to the continued and unchecked rise of recent months.
In the last year, mixed mortgage offers have proliferated in which a first period of the life of the loan is offered at a fixed rate and then a variable rate. It is a way to cushion increases since if the increases occur when changing from a fixed to a variable rate, the life of the loan will be advanced and, therefore, lower than if they occurred at the beginning, as shown in the attached graphs.
