Euribor rates, in key terms used in family and corporate loans, or even in some savings products – She is three, six, and 12 months –rising rapidly, projecting values that were expected for the next year only.
The three-month Euribor rate reached 0.145% this Thursday, the highest since October 2014. In six months, the most used range of mortgage loans was 0.632%, a value not recorded in 10 years. The 12-month rate, widely used in loans after 2015, was 1.142%, which is also the highest value in the past 10 years.
A few months ago, the 12-month term was only expected to be above 1.2% at the end of the year and now the market expects that rate to reach 2% in 2023. The remaining Euribor terms have been following this trend.
Why are Euribor prices rising?
Euribor rates follow the monetary policy trends of the European Central Bank (ECB), anticipating its decisions on raising or lowering key interest rates. The central bank just raised interest rates by 0.5 percentage point, above initial expectations, which was 0.25 point.
Euribor is also ‘sensitive’ to other risks, i.e. economic and political, which explains part of the discrepancy between the value of market rates – fixed loans that are available to a wide range of banks to implement among themselves – and central bank rate exits.
Is the trend continuing to rise?
yes. Above all, because of the magnitude of the hikes in key rates for the European Central Bank, which will continue to seek to respond to situations such as high levels of inflation in the Eurozone, among others.
What effect does this have on household credit?
It’s instant for anyone applying for mortgages tied to these rates. This was the option used in most loans for this purpose. Another possibility, fixed rates, still have a low weight in Portugal, because they are higher, although they do not change during the specified period.
The new values will also reach the realm of Euribor-linked contracts, subject to periodic renewals, at three, six and 12 months, depending on the price term used.
How much can a home loan go up?
Much depends on the size of the loan, but we can talk about a few dozen, or even about a hundred euros. A recent simulation by Banco BPI of a loan of 120,000 euros, with 33 years, indicates an increase of about 100 euros in the monthly installment, at the end of 2022, compared to what was repaid at the end of 2021. The calculation is based on 12 months Euribor by 1.2 % in December, which is approximately the daily value shown on Thursday.
Does Euribor’s height have any advantage?
Yes, for those with savings, especially for those with profitable products tied to these rates. This is the situation savings certificates. In recent years, negative Euribor has been “stealing” value from the 1% fixed premium, which has now expired. The total interest rate for new subscriptions and capitalization of Series E (the only open one) in the current month of July is set at 0.81% gross (0.6% net), after dropping to 0.411% in January, and will be the highest in August. The effect should also reach time deposits, but at a much slower pace, which depends largely on the financing conditions of the banks themselves. In May , average of 12-month deposits amounted to 0.04%, the lowest level ever.
What is the effect of higher Euribor rates on other loans?
The upward trend in key ECB rates and money market rates (Euribor) increases the cost of financing for individuals in other loans, such as consumer credit, which is still very invisible, but also for businesses. In the latter case, a large part of the interest rate on these credits is related to Euribor, or risk, reflected in margins (trade margin determined by financial institutions), which tends to increase when the economic situation is negative.
What do you do to support the increase in installments?
Timely diagnosis of possible difficulties is necessary in order to avoid interruptions in the payment of credits, which have serious consequences in the future. To do this, households could try to simulate the effect of raising the interest rate by 1%, 2%, or more. Website Simulator Everyone is important It is easy to use. They can also ask for help from the bank or use support centers such as deco.
What solutions exist to stop or reduce performance?
Families can always try to negotiate with the bank about some measure, such as changing the term of contracts, deferring part of the principal (paid on the last installment of the loan), creating grace periods for principal and interest, or others.
These changes affect the total cost of the loan, so they should be carefully considered, preferably with the bank itself.
The use of specialized firms, such as credit brokers, should be made with particular care of their suitability, as well as prior knowledge of costs. List of approved credit brokers . is posted On the bank’s customer portal at Banco de Portugal.
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