Interest on home loans in Portugal have been rising for four monthsfollowing the increase in Euribor, the reference rate that is indexed to most of this type of contracts.
According to the most recent data from the National Statistics Institute (INE), the interest rate associated with all mortgage loan contracts rose, in July, to 0.912%, 5.4 percentage points more than in June (0.858%). This was already the fourth consecutive month of interest rate hikes, which began their upward trend in April.
This increase means, in practice, that Portuguese families paid, on average, plus 3 euros per monthwhich put the average monthly installment of 264 euros. Of this amount, 46 euros (17%) correspond to interest payments and 218 euros (83%) to amortized capital.
In the most recent contracts, carried out in the last three months, the increase in interest rates is even more expressive. INE reveals that, in this case, the interest rate rose last month to 1,289%, up 13.2 percentage points from June. This means that the Portuguese who recently asked the bank for money to buy a house were left with a monthly payment of 425 euros, a value, on average, 16 euros higher than in the previous period.
Euribor dictates increase in monthly installments
This upward trajectory of house interest rates is being provoked by the evolution of Euribor rates, which began to worsen this year, following the increase in benchmark interest rates by the European Central Bank (ECB). As Euribor defines – together with the spread – the TAN (Nominal Annual Rate), any change in your quote has a direct impact on the monthly amount we pay the bank for our loan.
Although we cannot accurately predict the evolution of these rates, most likely, the coming times will be marked by progressive rises in Euriborwhich will translate into a consistent growth in housing credit costs.
In this scenario, it is important to see what alternatives you have at your disposal and how you can reduce your costs.
Also read: Euribor Rise: What is the impact and what to do?
Simulate the impact of the Euribor ascent and choose the best one for you
There are Euribor rates with different maturities, with 3, 6 and 12 months being the most common in home loans. they all have different quotes and different update rates (quarterly, semi-annually or once a year), so the choice between which rate to index your loan will have influence on your monthly bill.
In the current context of rising Euribor, shorter terms more quickly reflect the worseningwhile longer deadlines offer greater stabilityalbeit at a higher cost (the Euribor value is higher at 12 months than at 3 months).
The choice between them must depend on the preference of who hires housing credit, there is no one that is more advantageous for all customers.
In order to evaluate your case, use the Euribor variation simulator in home loans, where you can test possible Euribor increases and what impact they will have on your credit, in each of the terms.
Also read: Euribor: should I choose 3, 6 or 12 months?
Consider amortizing credit
If you have the finances, the repayment of credit can be very advantageous in this context of rising interest rates, providing significant relief in the monthly budget. Money parked in a term deposit is currently losing value – since inflation is higher than the interest paid on the deposit – so using this capital to amortize the credit can have more benefits, translating into a decrease in the monthly installment payable to the bank. At the end of the day, you will not only be relieving the family budget, but also reduce the total interest bill you will pay for the credit.
You can also choose to shorten the contract terminstead of reducing the installment, thus paying the same every month, but for less time.
Use the simulator of credit provision after early repayment to understand what impact it would have, in your case, and assess, in the best way, whether or not it is worth proceeding with the capital repayment.
Also read: Rise of Euribor: is it the right time to amortize home loans?
Re-evaluate your contract
The current context of rising interest rates offers a good opportunity to review the conditions of your home loanin particular spreadassociated products and other charges. Banks are now in a “war of spreads” to capture customersoffering attractive rates that, in some cases, do not reach 1%. Do you know what yours is spread hired? Pay attention to this value and be aware of competing offers.
Likewise, consider whether you have more advantages with a fixed, mixed or variable rate, or if you can save on insurance if you buy it outside your bank.
The most important thing is that be informed about all the details of your contractmake the choices that best fit your case and always be aware of the alternatives on the market.
Also read: What is the spread of your home loan? There are banks offering 0.85%
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