Your mortgage contract is reviewed in November? Be ready. The increase in the deposit can exceed 200 euros

Euribor rates continue to rise at high speed in October and only with the data from the first half of the month it is already certain that the average will be well above the September value. Home loan contracts revised next month will (a lot) increase. Find your situation in 12 simulations

inflation [na zona euro] may be more persistent and therefore the interest rate needed to contain it may be higher than economic estimates and financial markets currently assume.”

The statement appears in the latest economic bulletin from the Dutch national bank and is yet another warning of what could happen at the next meeting of the European Central Bank (ECB), in 10 days, in Frankfurt. The certainty is that Christine Lagarde and the other members of the Board of Governors will decide on a further increase in interest rates. The question is how much will the climb be: 0.5 points? 0.75 points? More?

If the prophecy of the Dutch central bank comes true, the rise will not be small. To look at Euribor rates it is clear that the markets are already expecting a significant rise.

The 6-month Euribor, the most used in mortgage loans in Portugal, recorded an average value in September of 1.596%. But just by counting the first half of October, it goes to 1.901%.

On the 12-month Euribor, the evolution is the same: from 2.233% on average in September, it is already at 2.561% in October.

Really, no one knows how high ECB interest rates will go.

Currently, the main rate is 1.25%. But the Organization for Economic Co-operation and Development (OECD), in its latest forecasts, worked with a rate of 4%. And a few days ago the Governor of the Central Bank of Belgium said that his bet is that they would go above 2%, but he also said that it would not be a surprise if the ECB were to “pass above 3% at any given time. point.”

The only certainty is that rates will continue to rise. The consequence is simple and often painful.

Housing loan holders whose contract will be reviewed next month can count on a further increase in maturity. And if for small loans the increase can be a little more than 25 euros, in contracts where the amount due is greater, the increase in the monthly payment can exceed 229 euros.

HOW MUCH HOUSING CREDIT WILL INCREASE IN NOVEMBER

30-year loan with a 1% spread

Loan of 25 thousand euros
Euribor 6 months Euribor 12 months
pay 78.77 pay 74.94
go pay 104.7 go pay 113.11
Increase 25.93 Increase 38.17
Loan of 50 thousand euros
Euribor 6 months Euribor 12 months
pay 157.53 pay 149.88
go pay 208.14 go pay 226.23
Increase 50.61 Increase 76.35
Loan amount: 75 thousand euros
Euribor 6 months Euribor 12 months
pay 236.3 pay 224.82
go pay 312.21 go pay 339.34
Increase 75.91 Increase 114.52
Loan amount: 100 thousand euros
Euribor 6 months Euribor 12 months
pay 315.07 pay 299.76
go pay 416.28 go pay 452.46
Increase 101.21 Increase 152.7
Loan amount: 125 thousand euros
Euribor 6 months Euribor 12 months
pay 393.83 pay 374.7
go pay 520.35 go pay 565.57
Increase 126.52 Increase 190.87
Loan amount: 150 thousand euros
Euribor 6 months Euribor 12 months
pay 472.6 pay 449.64
go pay 624.43 go pay 678.69
Increase 151.83 Increase 229.05

How to deal with rising interest rates?

With Euribor rates and monthly mortgage payments accelerating, personal finance specialists advise anyone struggling to pay off their credit (or expecting to have it) to contact the Bank to renegotiate the contract.

There are several options, but the most advantageous are a renegotiation of the “spread”, the margin that the bank takes, or an extension of the duration of the loan.

In the first case, if a loan of 150,000 euros over 30 years is evaluated, with a ‘spread’ of 1%, if this ‘spread’ is reduced to 0.5%, the savings made on the monthly payment can exceed 30 euros per month .

If the term of the loan is extended, the savings are even greater. For the same loan, an extension to 40 years would save more than 100 euros per month.

Another option, for those who have savings they can move around, is to prepay part of the loan. Again, for the same loan of 150 thousand euros, the amortization of, for example, 30 thousand euros would save almost 100 euros per month. However, this depreciation is accompanied by a penalty of up to 0.5%, which in this case would correspond to a single cost of 150 euros.

What is the government preparing?

Penalties for early depreciation are, in fact, one of the measures in force that the government wishes to modify. The Ministry of Finance has already announced that it will suspend this penalty for the next year in order to help families with home loans.

The suspension of this penalty is an incentive for those who have savings and want to repay part of the loan to reduce the monthly payment. On the other hand, when a debtor finds a better solution for mortgage loans with a competing bank, the transfer of his credit to the other bank always supposes the amortization of the first loan, which is currently subject to this penalty.

In addition to this measure, the Government is also preparing legislation to facilitate the possibility for holders of housing loan contracts to extend the duration of their loan.

As part of the State Budget for 2023, the Government has also decided that next year taxpayers holding housing loan contracts will be able to benefit from a monthly IRS deduction rate lower than that determined by law. . In practice, it will be possible to discount monthly at the rate immediately lower than that which would have been discounted without this new rule.

However, this measure will have a monthly impact reduced and, in 2024, when the taxpayer submits the tax return for the income received in 2023, he will have a lower tax refund, because he has withheld less IRS throughout the year, or he may even have tax payable.

As part of the social dialogue agreement, signed between the government and the social partners, it was also provided that an assessment would be made of the impact of the increase in the cost of housing on the family budget, in the meaning to build measures that mitigate these same impacts, until the end of 2022.

Portrait of real estate credit in Portugal

indexing

At the end of 2021, the most frequent indices were the 6-month Euribor, in number of contracts, and the 12-month Euribor, in terms of outstandings.

The 6-month Euribor was the index for 40.5% of contracts and 29.1% of outstandings, while the 12-month Euribor was the index for 28.1% of contracts and 40.4% of outstanding debt.

The 3-month Euribor continues to represent less than a third of the mortgage loan portfolio.

‘spread’

The portfolio’s average spread stood at 1.21 percentage points at the end of 2021.

Assess

Variable rate contracts represent 93% of the number of contracts in the portfolio at the end of 2021 and 91.1% of the outstanding.

Deadline

The majority of contracts at the end of 2021 (64.4%) had initial durations between 25 and 40 years, highlighting durations between 35 and 40 years (27%) and between 25 and 30 years (24.2%) . The residual duration of the contracts at the end of 2021 was 21.5 years.

The average duration of contracts in the portfolio as of December 31, 2021 is 33.5 years.

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