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Citizens overwhelmed by the Euribor: is it convenient to repay the mortgage now?


The client must take into account a series of variables to see if it is worth advancing the payment of his loan

The effects of the hurried rise of the Euribor are beginning to be evident.

The bank statements that arrive at the homes of the mortgaged already reflect increases of several hundred euros in the fee.

For more than four million families, the Euribor —the most widely used index to calculate the revision of variable interest rates— has passed over them.

For seven years, the Euribor has been in negative territory.

It was not a topic of conversation or debate;

did not fight

In April 2022 it returned to positive levels and just eight months later it was above 3%.

It is now at 3.3%.

“For a mortgage of 200,000 euros signed in April 2022, the fee has grown by 300 euros more per month.

Each point that the Euribor rises for that amount of loan is 100 euros more per month ”, indicates Ricard Garriga, CEO of Trioteca.

The bewilderment spreads like a great oil stain.

Mortgages who are lucky enough to have savings wonder if they should repay early to pay less interest.

Is it a good time to advance the mortgage payment?

It depends.

There are a few variables that must be taken into account to make the right decision.

"At a time like the current rate rises, if the mortgage is variable and when reviewing the loan an interest rate is applied that is higher than the profitability generated by depositing that savings in an alternative investment, it could be interesting to repay early," he says. Leyre López, analyst at the Spanish Mortgage Association (AHE).

Many savers are now considering paying off their mortgage.

"We see it constantly with clients," confirms Jaime Aguilar, wealth advisory partner at Abante.

"We come from a very bad year in fixed and variable income, and these penalized people think that, in order not to obtain profitability, it is best to amortize," he adds.

However, despite the natural impulse to want to cancel the debt as soon as possible, "it is important to analyze the different options from a financial point of view, since this debt reduction is not always the best option," says Víctor Royo, head of Ibercaja commercial strategy.

The advice that they launch from Abante is clear: "If you can obtain a return equal to or greater than the cost of financing, it is not convenient to amortize and it is advisable to invest," says Aguilar.

The advisor highlights short-term fixed-income vehicles with very low risk and very attractive returns, around 3%, depending on the fund.

"When clients see the long-term numbers, they are usually convinced that it is more interesting to invest," he emphasizes.

He puts a specific case: a mortgage of 250,000 euros at Euribor plus 1% contracted in 2011 with eight years remaining (the term is 20 years).

The mortgaged person has 40,000 euros in savings.

In this case, the Euribor falls in 2025 to 2.5%, which is the level at which market forecasts point.

“In the eight years that remain on the mortgage, he saves 6,548 euros in interest if he repays.

But if you decide to invest in a portfolio that offers a 3% average annual return, at the end of these eight years the return you will obtain on 40,000 euros is 10,670 euros.

Investing gets 4,122 euros more than what is saved by amortizing ”, calculates Aguilar.

If in the same example you had 16 years of loan left, the savings to be amortized would be 13,844 euros and you would get a return of 24.

It is true that in 2022 investment funds have had significant losses.

But the landscape is changing.

“The upward trend in interest rates has made it possible to launch products with very interesting interest rates and aimed at conservative clients, for example, with investment in Spanish or Italian public debt.

In addition, it is possible to find investment products with important tax advantages, such as pension plans”, says Royo.

However, if the client has a very conservative profile, does not want to take any risk, has no interest in investing, has savings under the mattress or in a checking account that barely pays him, his best option is to repay the mortgage.

Of course, experts advise never decapitalize.

"It is important to keep savings in order to be able to face possible unforeseen events," says Royo.

There are more relevant issues, such as whether there is tax relief for early repayment, something that happens in regular homes purchased before 2013. "If the annual mortgage payment does not reach the maximum 9,040 euros that can be deducted per year, it may be interesting to carry out the early repayment to match that amount”, affirms Cristina de Marcos, head of mortgages at ING.

How much time is left

How many years do you have left to finish repaying the loan?

This question is decisive.

Mortgages in Spain are governed by the French amortization system, according to which more interest is paid at the beginning than capital and interest is reduced as time passes.

In this way, it is interesting to amortize in the first years of the life of the mortgage and not at the end.

"If you have just signed the loan, you are interested in paying it off and the sooner you do it, the better," warns Ricard Garriga.

At Trioteca, digital

online mortgage platform

They give an example.

Let's assume a 30-year mortgage of 200,000 euros at a rate of 3% and a mortgaged person with 10,000 euros in savings.

“If you repay those 10,000 euros in the fifth year of the mortgage, you will have savings of 10,900 euros in interest.

On the other hand, if you pay it off in year 25, and assuming that the rate remains at 3%, you will have savings of 1,600 euros," Garriga calculates.

You must also pay attention to the existence of a commission for early repayment.

"It is important to carry out the calculations carefully, since, even if there are commissions, it may be worth amortizing," they indicate in ING.

"If you save 100 euros each month and the commission is 1,000 euros, go ahead," advises Garriga.

When advancing payments, it is necessary to decide if it is convenient to reduce the fee or term.

It depends on whether the mortgaged person can assume the increase in the bill, if they need liquidity... "If you want to pay the same and live more comfortably, it is better to lower the terms and pay a little less interest," says Cristina Marcos.

Thus, it is not only necessary to take into account the market context.

It is essential to analyze the client's financial situation, commissions, tax relief or investment options.

And, in any case, you can always change to a fixed or mixed mortgage.

And within two years, get hooked on a variable again.

"There are many people who still do not know that they can change their mortgage whenever they want," recalls Garriga.


Is it worth hiring a mixed mortgage?

A housing development on the island of Zorrozaude in Bilbao, Photo: EFE |

Video: EPV

Source: elparis

All business articles on 2023-01-30

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