The Web site European Central Bank (ECB) has just raised interest rates again, in this case by an additional 75 basis points to reach 2%, the highest level since 2009. This upward movement is pushing the Euriborwhich has been on the rise for weeks. Mortgages suffer, but even more so are variable rate mortgages. In a hot market, banks want attention and some of them have already been encouraged to offer secured mortgages as a possible solution to the increase in reimbursements.
What is this mechanism? In reality, it is nothing more than a ceiling. Therefore, if the Euribor exceeds the limit set for calculating the interest rate of the loan this maximum percentage will be takenis taken, to which the corresponding difference is added. If, on the other hand, the reference rate falls below the set limit, the emission trading operation continues. Euribor then in effect.plus the corresponding differential.
This product is similar to a mortgage exchange, but “It follows a more understandable, more transparent and less risky logic”.César Betanco, Hipoo’s mortgage brokerage expert, points out that he offers other mechanisms, in addition to secured mortgages, to try to salvage this new interest rate hike. Mortgages with extension and exchanges of mortgages for new mortgages, novations and, to a lesser extent, subrogation for those already mortgaged, can be included. For those who have already taken out a mortgage, the best way to overcome the obstacle of rising interest rates is through novation.
About mortgage loans with a grace periodhe explains that this is “a negotiable addition with the bank and that there may be a pause in the payment of monthly payments, generally between 12 and 24 months”. This grace period can be negotiated by combining principal and interest or principal only. “Mortgage loans with a grace period can be very useful if you are The moment in which to apply this suspension of payment is chosen correctly. payments. For example, if you choose an assumed Euribor peak, you can avoid high repayments due to forecasts, ”says the platform.
On the other hand, there is insurance to cover any rate increases beyond a certain level. “The chance to take a mortgage exchangeeven though it is a risky product, it can serve to protect us, to a certain extent, from the Euribor rises “, although it is advisable to consult an expert” because of the importance of the Euribor “. the complexity of the product and the possible consequences of bad negotiation “.
As the mortgage brokerage platform explains, how the mortgage swap works: if interest rates rise above a certain level, say 3%, you will no longer pay mortgage installments due to rising interest rates, but rather in return, this insurance premium would be paid. “This premium is a bond equivalent to home insurance or life insurance and can be of great help if the Euribor rises disproportionately as it did about 15 years ago when it exceeded 5%. Both possibilities, mortgage exchange and grace period mortgages, are options to be studied and negotiated before signing, during the previous negotiation process.
As for people already mortgaged, expert Hipoo says that one of the best ways to overcome the obstacle of rising interest rates, and by extension, Euribor, is subrogation or cancellation of the loan. “Negotiating a mortgage subrogation or cancellation with another entity can be very helpful in getting a better interest rate,” she says. In this sense, it should be borne in mind that in order to carry out this type of loan renegotiation it is necessary pay a penalty that varies according to the type of loan..
On the other hand, it should be remembered that the government negotiates with financial institutions measures to dissipate the effect of the Euribor surge. In the absence of an agreement, possible actions were suggested to freeze the mortgage payments for one year or extend the loan repayment period up to five years.
Another of the options we are working on is the need to modify or remove from the code of practice the condition of reduction of household income in order for a borrower to be considered in difficulty and to benefit from the social shield offered by the protocol in force, which it is mandatory once the institutions are established.
There is also discussion on the need to lower the effort rate of the mortgage installment in order to access the special protection (the protocol places it at 50%). Furthermore, banks are still trying to clarify the definition of vulnerable households.
