After months from its historical lows, the Euribor rate has turned to positive values with a tendency to increase further. Families are now seeing their budget hit, especially those who took out a variable rate mortgage.
Learn how to deal with rising Euribor with these recommendations and thus reduce your financial effort.
What is Euribor and why did it rise?
the Euribor It is the interest rate that banks in the euro area pay to lend money, which is the benchmark for most home loans. These fees are not fixed. It is subject to daily fluctuations depending on the average interest rates One of the most active banks in the Eurozone.
The Euribor rate remained at relatively comfortable levels for Portuguese people who took out a mortgage. However, experts have already issued some warnings, predicting that this rate will rise, and indeed it has.
Indeed, the Euribor rate continues to rise at full speed, and thus has naturally raised concerns on the part of families, who may find themselves in a more precarious financial situation. Everyone who has a variable rate mortgage will see their mortgage payments go up once they review it.
What caused the rise in Euribor?
The increase in the price of Euribor is a consequence of the financial consequences of the war in Ukraine. war generates a inflation in the eurozone In response, the European Central Bank (ECB) adopted tighter monetary policy, and raised interest rates.
This change began to show its first signs in February 2022, when the European Central Bank itself acknowledged this possibility. Since then, the Euribor rate has been particularly volatile. What was predicted was now confirmed: the price of Euribor has risen and will continue to rise, which will make the Portuguese household’s expenses soar.
However, there are some ways to combat high Euribor. Below we explain how you can renegotiate the terms of your mortgage loan and thus reduce the impact on your family’s financial health.
6 ways to combat high Euribor
This is the time to review the terms of your mortgage loan. You should act now and not wait for the rate to rise further to do so. When renegotiating with your bank, the following aspects should be considered.
1. Renegotiate the spread
the spread It’s part of the amount you pay the bank per month for the house, and it’s the profit margin the bank gets for lending you money. Therefore, it is freely defined by the banking entity, and is not dependent on external financial factors. Therefore, it is a value that the bank can manage independently.
attempt Reduce this part Thus reducing the value of the monthly installment. However, before taking this proposition forward with your bank, compare the spreads being exercised by other financing entities to get a more complete idea of current market conditions and how far you can go.
2. Consider switching to a flat rate
You can also evaluate, with your bank, whether it is worth it Switch to a fixed price. With this kind of price, you are immune to the volatility of the Euribor; The fee amount, as the name suggests, is always the same. Thus, when the price of Euribor rises or falls, its price remains unchanged.
It’s true that he doesn’t take damage when Euribor rises, but he doesn’t benefit when he falls either. Also, fixed rates are always higher than variable rates, it’s the price of stability.
Therefore, carefully evaluate and perform simulations before initiating any possible contract change. Make sure that the amount you pay for the fixed rate makes up for the amount of the variable price, which has now been increased by increasing the Euribor.
3. Review your life insurance
See if you can save more by using life insurance Linked to your home loan if you rent it outside the bank. This is also part of the total amount you pay the bank, which is not dependent on the European economy.
Do market research on the terms the competition is on, and see if they would be more beneficial to your situation. Keep in mind, however, that the fact that you signed out for life insurance at the same entity where you took out your mortgage loan may have led to other advantages, such as a more attractive spread.
So in your final bills check if the cheaper life insurance makes up for the loss of this or other initially agreed benefits.
4. Consider transferring your balance
You might also consider an option Convert your home loan to another bank. It all depends on who offers the best conditions. Therefore, analyze the competition and ask for proposals from other financial institutions.
See if they suggest a spread more comfortable for your family budget and compare proposals through AprilAnd choose the smallest. If you find a mortgage that suits you better, you can make the transfer and thus reduce your monthly payment.
You can make this decision at any time, however, you must notify the bank 10 days in advance and, as with the first balance, submit all Required documents for employment.
5. Extinguishing part of the debt
If your savings allow, consider Partial debt repaymentthat is, settling a fraction of the credit in advance (however, without resorting to emergency fund). In this way, I was able to reduce the capital debt, and therefore the monthly installment.
Keep in mind that this procedure may also come at a cost. As a general rule, banks apply a penalty calculated on the basis of a percentage of the amortized capital. Therefore, it is important to understand whether what you will pay for consumption is worth the reduction in the monthly fees that you will receive.
6. Do a credit consolidation
If you hold multiple credits at the same time, chances are you will pay different entities with different terms. In this case, Consolidation of credits It could be a good choice.
By consolidating all credits into one account, you will get better terms and one lower monthly installment. The interest rate on a consolidated loan is usually lower than the average interest rate on each loan you own.
This advantage stems from a longer repayment period. However, it might be better to pay for longer when that represents more liquidity each month to withstand the effects of higher Euribor.
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