Since the end of 2019, the Portuguese have not paid so much for the home loan. Euribor – which define the interest rate, together with the spread – are at highs of more than a decadewhich is directly reflected in the monthly installment payable to the bank.
The most recent data from the National Statistics Institute (INE) show that the interest rate implicit in mortgage loan contracts in Portugal increased, in August, for the fifth consecutive month, to 1.011%, the highest figure in nearly three years. This is an increase of 9.9 percentage points compared to July (0.912%) and which places interest at a level not reached since December 2019 (1.011%).
For house purchases, the most relevant financing destination in housing credit as a whole, the increase was from 0.928% to 1.027%. For housing construction, the rate was fixed at 0.828% and, for rehabilitation, at 1.184%.
According to the statistical institute, the average repayment of home loans increased by 4 euros to 268 euros. Of this amount, 51 euros (19%) correspond to interest payments and 217 euros (81%) to amortized capital. The average capital outstanding rose by 345 euros to 60,750 euros.
O increase in interest rates was even more expressive in the most recent contracts, concluded with the banks in the last three months. In these cases, the average installment increased by €20 to €445, with the interest rate rising from 1.289% to 1.523%, the highest level since April 2018 (1.559%).
What to expect from interest?
The increase in mortgage loan interest rates is being motivated by the aggravation of Euribor which, after a long period of trading on negative ground, began an upward trend in February this year.
This evolution took place in a context of strong geopolitical instability – with the invasion of Ukraine by Russia – and of rise in inflationwhen it was already anticipated that the European Central Bank (ECB) would have to reverse its expansionary policy and start raising interest rates to control the rise in prices.
This increase by the central bank took place in July (for the first time in 11 years) and was repeated in September, with the announcement of the biggest ever rise in benchmark interest rates. Euribor rates have followed this path, having this week reached the highest level in more than ten years in terms of 3, 6 and 12 months.
How far can my installment go?
Although it is not possible to anticipate how far the Euribor will rise, the perspective is that they will continue to aggravateup in the near future. This is because the ECB itself has admitted that it will announce further interest rate hikes at the next meetings as current rates are still far from the level necessary to bring inflation back to the 2% target.
ECB President Christine Lagarde herself admitted that three or four more increases should be needed in the coming months, which will place benchmark interest rates above 2%. In this context, Euribor rates will continue to worsen, weighing on the monthly bill of families to the bank.
To understand the impact on your credit, use the Euribor variation simulator in home loans, where you can test possible rate increases.
Also read: Euribor: should I choose 3, 6 or 12 months?
Interest rate hike: what to do?
With prospects pointing to a continued increase in Euribor rates, it will be the right time to pay off your home loan, if it has equity that allows it. As we have seen, interest rates will continue to rise and, although the yield on deposits will also increase, it is not advantageous to have money parked in the bank.
By opting for amortization, you can reduce your monthly installment or shorten the term of the loan, saving significantly on the interest bill throughout the contract.
To get an idea of the monthly amount you will pay the bank after repaying the credit, use the simulator for providing credit after early repayment and analyze the advantages that this solution may have.
Can’t pay off the credit?
If you are unable to prepay your credit, must review the conditions of your contractincluding spreadassociated products and other charges.
If you took out your home loan ten years ago, for example, you will be paying a higher spread than what banks currently offer. Depending on the particular conditions of each customer, there are banks to offer spreads of only 0.85%.
Although these values are not accessible to all credit card holders and contracts, it is worth trying renegotiate with your bank or look for more advantageous alternatives in another institution. Be aware of market offers and look for the best solution for your case.
Also read: What is the spread of your home loan? There are banks offering 0.85%
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