After falling in June, the Euribor closes July with a further decline. And it is that the provisional average of this index, in its modality to one year, is of -0.49 percent; very close to its all-time low (-0.50 percent in January 2021).
This will benefit those who have a variable mortgage whose interest is reviewed in the coming weeks, as they will be able to pay more affordable installments.
However, from the financial comparator Helpmycash they state that Only those whose interest is updated every 12 months will notice a reduction in their monthly payments.
Annually reviewed mortgages will get cheaper
The interest rate for variable mortgages, as a general rule, is updated semi-annually or annually.
When the update date arrives, the bank takes the last value registered by the index to which the loan is referenced (normally the Euribor) and uses it to calculate the interest to be applied until the next revision.
Thus, if the rate is lower, the loan installments will be cheaper, while if it is higher, its amount will be more expensive.
In July 2020, the Euribor was trading at -0.27 percent, a value well above the -0.49 percent that is now registered provisionally.
Consequently, the mortgages with annual review to which the interest is updated in the coming weeks will notice a significant reduction in their monthly installments.
Let’s say, for example, that a client with an average mortgage of 150,000 euros at 25 years and with an interest of Euribor plus 1 percent has an annual review.
As calculated by Helpmycash for finanzas.com, after updating its interest rate, the installments would be cheaper by almost 14 euros per month, so a total of about 170 euros would be saved next year.
Slightly more expensive semi-annual review mortgages
Less luck will have, however, those mortgaged at a variable rate with a semiannual review in the coming weeks.
And it is that six months ago, in January 2021, the Euribor reached its record low of -0.505 percent. Therefore, as is logical, they will have a higher interest and their fees will be slightly more expensive.
Continuing with the previous example, that average mortgage of 150,000 euros at 25 years and with an interest of Euribor plus 1 percent would become more expensive around one euro per month after the semi-annual review (almost six euros to be paid more next semester) .
Even so, taking into account that this index will register its third historical minimum value in July, the amount of the monthly payments would be very affordable.
Euribor below zero in the short term
The new Euribor drop will benefit mortgages whose contract will be reviewed soon, but what will happen to those who have the update later?
In the short term, given the intention of European Central Bank (ECB) to keep its interest rates at zero percentEverything indicates that this index will trade at very low values both this year and the next.
That is the forecast of experts in the field, such as those from Bankinter’s analysis department.
They expect the Euribor to close 2021 with an average value of -0.50 percent. By 2022, their prediction is that this index will trade at an average of -0.41 percent, while in 2023 they believe it could rise to -0.26 percent.
In the longer term, on the other hand, it is difficult to guess what could happen, because according to Helpmycash analysts, everything will depend on whether inflation rises or not.
Thus, if the European economy improves and EU inflation exceeds 2 percent in a few years, the ECB may be encouraged to raise its rates, which would cause an increase in the value of the Euribor.
Nevertheless, if the eurozone economy remains stagnant for several more years and inflation remains below 2 percent, this index may remain below zero.
Consequently, we will have to wait and see what the financial situation of European countries is after the pandemic in order to make a more reliable forecast.
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