The High Cost of Variable Rate Mortgages and the Benefits of Fixed Rates

A recent simulation by Facile.it and Mutui.it highlighted the high price paid – and will continue to be paid for at least a year – by subscribers to variable rate mortgages. variable rate mortgages compared to those who opted for a fixed rate. The borrower who has opted for the variable rate today pays monthly payments 60% more expensive than in 2022. The decisions of the ECB to fight against galloping inflation are at the origin of this increase in monthly payments.

The simulations of Facile.it

For the analysis, Facile.it took as a reference a variable rate loan of 126 000 euros, with repayment plan in 25 years signed in January 2022, and studied the evolution of maturities from the beginning of 2022 until today, and their possible evolution in the coming months on the basis of futures contracts on the Euribor rate, which allow measure market expectations.

“The starting Tan rate in January 2022 was 0,67%which corresponds to a monthly payment of 456 euros. Following the various increases in the cost of money implemented by the European Central Bank to fight against inflation, the mortgage rate increased to reach, in August 2023, the 4,95% with a monthly payment of approximately 726 euros; today’s borrower pays up to 60% more compared to the beginning of 2022 (+270 euros)”, reports Facile.co.uk in a press release.

“Facile.it then calculated how much the monthly payment increases weighed on those who contracted the financing in question; by adding the additional amounts paid each month compared to the starting monthly payment, it appeared that, from January 2022 to August 2023, the total expense for the borrower was more than 2,300 euros. As mentioned, if we take into account the market forecast, i.e. the Euribor Futures, the total worsening in July 2024 could be even higher than the amount of 2,300 euros. 5 300 EUROS“.

Market forecast: peak in December

In recent weeks, the 3-month Euribor has slowed its rise,” the statement said, “but according to expert forecasts, by the end of the year the index will continue to rise, reaching the highest level of the year”.

between November and December 2023, when it reaches 3.86%, which would bring the 3-month Euribor interest rate to 3.86%. mortgage rate The average mortgage rate taken into consideration exceeds 5.10%, with a monthly payment of around 734 euros, more than 275 euros more than in January 2022. The good news is that with the start of the new year, the trend could finally reverse, so much so that looking at the March 2024 quotations, the mortgage rate studied should drop to 5.02% and even drop to 4.83% in June 2024.”

“According to our forecasts, at least until the end of the year, borrowers with variable rate loans will face… further increases and, albeit slowly, from December 2023 rates will first stabilize, then begin to decline and return to below 3%, presumably from mid-2025″, he explains. Ivan Cresto, Managing Director of Financing Products at Facile.it. “While the impact of price increases will be different for everyone depending on how much is left on the mortgage and how many payments are left to make – the closer you are to the end of the repayment plan, the smaller the effect will be. – the advice is the following to set the maximum level beyond which the monthly payment could become unaffordable and contact your lender or an independent consultant to find the best solution”.

Good news for those under 36

“Young people who find it difficult to buy their first home can continue to benefit from aid from the European Union. warranty terms subsidized up to 80 percent at least until September 30, after the 3-month extension decided by the government”, then points out Facile.it in the press release. “Since its implementation in 2021, the measure has allowed many under 36s to access advantageous conditions when taking out their first mortgage, so much so that, according to the analysis of Facile.it , if in the first half of 2021 applicants under the age of 36 represented 43.4% of all applications for a first mortgage, between January and June 2023, this value has… reached 51%“.

“We very much welcomed the government’s decision to once again extend the validity of the relief for young borrowers, as it has given more time to young people struggling to find their first home to buy,” continues- he. Cresto. “As the figures show, the instrument has been very important for those under 36, as it has given them real and increased possibilities to buy a home, which has also supported the housing market. We can only to hopealso taking into account the particular conditions of the market in which we find ourselves, that the measure be extended until the end of 2023 and maybe also 2024“.

“According to the simulations of Facile.it, today for a 100% fixed mortgage without facilities, the fixed rates (Tan) available online start – for a loan of 180,000 euros in 25 years – from 4.75% with a monthly payment of approximately 1,026 euros. By requesting the same type of loan but taking advantage of the facilities reserved for young people under 36, there are online rates from 3.60%, which corresponds to a monthly payment of 911 euros. By taking advantage of the subsidized conditions, it is therefore possible to save nearly 115 euros per month compared to those who take out the same loan but without benefiting from the facilities”.

What is worth today

“For would-be borrowers struggling to make mortgage choices today, there is little doubt as to the best rate to subscribe to.“, conclude the experts in the press release. “According to the simulations of Facile.it, taking into consideration the standard mortgage used in the previous analysis, the best fixed rates (Tan) available online today start from 3.60%, corresponding to a bracket of 638 euros, while for a variable mortgage the best offer starts from a Tan of 4.47% and a slice of 692 euros.”

“The data shows that at this stage, the first option to evaluate is that of the fixed rate mortgage, which not only guarantees the stability of the monthly payment, but which, with supporting data, is even the most advantageous. cheaper than the initial rate of a variable mortgage”. ()