The European Central Bank has decided to lower interest rates by a quarter of a percentage point for the third time in a year. The ECB’s rate cut of 0.25% will lead to savings on the most common types of mortgages in Italy.
Falling rates: here’s how much the variable mortgage installment will fall
Consumer associations such as the Codacons according to which the cut in interest rates means a reduction in the installment of the variable rate mortgage, turned on to buy your first home, between 13 and 30 euros per month. Codacons also calculates that for a 20-year variable mortgage for an amount between 100 thousand and 200 thousand eurosthe saving on the monthly installment varies between 13 and 27 euros, equal to a lower annual expense between -156 and -324 euros. If the loan has a duration of 30 years, the rate cut of 0.25% will produce an average saving of between 15 and 30 euros on the monthly installment, between -180 and -360 euros per year. For a mortgage of 125 thousand euros over 25 years, however, a similar cut translates into a saving of around 17 euros per month, with an impact of 204 euros on an annual basis.
According to theNational Consumer Unionthe reduction in rates of 25 percentage points, considering the latest APR communicated by Bankitalia, 4.1 percent, and the amount and average duration of a mortgage, corresponds, in the event there was a non-discounted full transfer on the Euribor, at one decrease in installmentfor those who have now contracted a variable rate mortgage, equal to 18 euros per month, 216 euros per year.
Secondly finally Mutuionline.itthose who have chosen the type of variable rate loan, with the rate cut decided by the ECB, will see the interest rate lower, with the monthly installment down by €20 on a mortgage of €150 thousand over 20 years.
Because ECB interest rates influence your mortgage payment
European Central Bank (ECB) interest rates influence your mortgage payment because they determine the cost of money for banks and, consequently, the interest rates applied to loans to customers, including mortgages. The reduction in the cost of money in particular is reflected in Euribor rates, which is the rate at which banks lend money to each other, the index on which those of variable mortgages are calculated.
Thus, if a mortgage is indexed to Euribor, an increase in the ECB interest rate will lead to an increase in Euribor. As a result, your adjustable rate mortgage payment will go up, as the interest portion of your monthly payment will increase. For fixed rate mortgages, however, the interest rate is determined at the time of signing the contract and does not change for the entire duration of the mortgage. However, market rates, influenced by the decisions of the ECB, can make taking out new fixed rate mortgages more expensive or more convenient.
How to save on your mortgage payment with subrogation
But how can those who have a current mortgage save on the monthly payment? A valid solution that is capturing great interest is the subrogation. It is law no. 40 of 2007, also known as the Bersani Law and currently, after some changes introduced with subsequent laws, article 120-quater of the Consolidated Banking Act to introduce subrogation in Italy, i.e. the possibility of transferring one’s mortgage from a bank to a another which possibly poses better conditions. In essence, with subrogation you can literally do it transfer the existing loan contract from one bank to anothermodifying the parameters of the mortgage itself, therefore closing the old mortgage and taking out a new one with a new bank, but using the original mortgage.
How to save on your mortgage with renegotiation
In addition to the subrogation, to save on the mortgage payment you can also think about opting for theto renegotiation, the instrument that allows you to change, in agreement with the bank, the characteristics of the existing mortgage, in particular the type of rate, the size and duration of the loan. Unlike subrogation, you do not change credit institution but you remain with the same one with which you took out the mortgage but some contractual conditions are changed. The renegotiation must be requested in writing to your bank which has the duty to respond and there are no expenses or other bank commissions.
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