Facing the financial swing imposed by the Euribor has led mortgage holders to deploy bold tactics to ensure stability in their pockets. The first half of this year has seen an impressive 200% increase in mortgage renegotiations, reflecting steely determination in times of economic turbulence. These renegotiations have accumulated a total of 2,192 million euros, a powerful testimony of the commitment of those affected to mitigate the impact of increasing interests.
The economic scenario has not relented in its punishment of more than 3.7 million mortgage holders with variable interest rates. After having reached historic lows in January of last year, standing at -0.504%, the Euribor, the fundamental index for calculating mortgages in Spain, has climbed to close July at 4.149%, representing a dizzying increase of 318% compared to the same month of the previous year.
This increase, the most significant in 15 years, has triggered a 38% increase in mortgage payments that will be reviewed next August. For an average mortgage, this translates into an increase of 231 euros per month or 2,777 euros per year, according to Estefanía González, personal finance spokesperson for Kelisto.
The constant rise has placed many homeowners at a financial crossroads, challenging their ability to cope with the growth of their mortgage payments. Faced with this situation, various alternatives have made their way to pave the way towards financial relief. From changing from a variable to a fixed or mixed mortgage, to the early repayment of debt, the search for mortgage aid approved by the Government in 2022, the extension of the term or the negotiation of grace periods, the options are varied and pursue an objective common: maintain financial balance.
The adoption of these alternatives has resulted in an extraordinary increase of 204,87% in mortgage renegotiations during the first half of this year, compared to the same period in 2022, resulting in a total renegotiated amount of 2,192 million euros, according to data of the Bank of Spain.
In this changing reality, "many mortgage owners have tried to reach agreements with their banks to mitigate the impact of increases in their installments and many of them have been successful in renegotiating their terms," says Miquel Riera, mortgage expert at HelpMyCash.
One of the preferred strategies among mortgage holders to mitigate the impact of increased payments is the transition from variable to fixed mortgages. Although fixed interest rates have seen increases from 54% to 62% over the last year, it is still possible to find offers at 2,90% for a term of 25 years, a period that adjusts to the average in which mortgage loans are requested in Spain .
In addition, the reduction in costs to change from a variable mortgage to a fixed one, through subrogation or novation, in banks participating in the mortgage aid plan, offers an additional incentive. During 2023, these entities cannot impose subrogation/novation fees, and starting in 2024, this fee will be limited to 0.05%.
Another alternative is the transition from a variable mortgage to a mixed one, especially when the mortgagee has the ability to repay debt early. Mixed mortgages offer a more favorable fixed interest rate than fixed mortgages during certain initial years. "There are mixed mortgages with interest starting at 2,25%," says Estefanía González, although this interest applied would only be valid for a limited period. «The longer this period, the higher the fixed rate applied by the bank; Subsequently, the mortgage will again be variable and, therefore, the holder will be exposed to fluctuations in the Euribor," explains the expert.
Early amortization of part of the mortgage to reduce the monthly payment is another strategy that can avoid the rise of the Euribor. However, this option is only available to those who have savings. In such cases, the amortized amount is deducted from the outstanding principal.
It is worth mentioning that some banks may impose early repayment fees, although these are regulated by law. In the case of variable mortgages, this commission is 0.25% during the first three years, and then it is not applied; while in fixed mortgages, it is 2% during the first ten years and then decreases to 1.5%. However, "banks participating in the mortgage aid plan will not be able to charge anything for this concept during 2023 for those who have a variable mortgage," González emphasizes.
The search for government aid, the extension of terms or the negotiation of grace periods are alternatives available to mortgage holders. However, these options are conditioned by certain income requirements and the relationship with banks that have joined this aid. Among the proposed measures are the extension of mortgage terms up to seven years to reduce payments, the request for grace periods of up to five years, in which only interest is paid, or even the freezing of mortgage payment payments for 12 months. . However, these alternatives are not free. According to Kelisto calculations, the expenses associated with these operations increase the final cost of the mortgage between 16% and 72%, depending on the option selected.
Other options include requesting an extension of the mortgage term through a novation, or negotiating grace periods. However, analysts warn that both actions have costs and, in the long term, can increase the total amount paid in interest.
Faced with this challenging scenario, mortgage owners have a series of tools at their disposal to deal with the increase in the Euribor. The key is to understand these options, consider the financial implications, and make informed decisions. Ultimately, the ability to adapt and find solutions to financial challenges demonstrates the resilience and ingenuity of mortgagees amidst an ever-changing economic terrain. Remember that, in these moments of uncertainty, collaboration with legal and financial experts can provide you with clarity and the support necessary to navigate with confidence towards a more stable horizon.
