IF you have a mortgage, this is how the ECB rate hike affects you

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Interest rates are rising . The ECB's announcement that rates would rise by basis points in July and probably the same number in September, is joined by the Fed and the Bank of England's rise of basis points this week.

The reason is, of course, to contain inflation. But there are several people harmed by these rate increases. The principal is the one that has a variable rate mortgage . These increases by central banks are going directly to take money out of the pockets of mortgage holders, and it is very important to know how far they can go.


Panic? A little, yes
First of all, the ideal is to do some simulation of how far mortgage payments can go if rates continue to rise. We must examine the differential with the Euribor and take into account that the one-year Euribor will be a little below or (normally) above the official ECB rate.

We are going to do some calculations with the average mortgage in Spain , which according to the INE is approximately , euros and a term of years. And we are going to assume a differential with the Euribor of %.

The ECB will raise interest rates: this must be taken into account in our investments
ON THE SALMON BLOG
The ECB will raise interest rates: this must be taken into account in our investments
At the beginning of   Mexico Email List  the year, this mortgage holder, with the Euribor at -%, paid an interest rate of %. And the resulting fee was euros per month. With the Euribor currently at %, the resulting interest rate is %, leaving an installment of euros per month, euros more than at the beginning of the year .



But how high will rates go? It is difficult to know, but the normal thing, once the period of low rates is over, is for rates to be above inflation. We are going to make two assumptions: that inflation reacts quickly to the rate increase or that it does not .

In the best case, the ECB will raise rates to % or % and thus manage to contain prices. This would give a % mortgage, and a payment of euros per month, euros more than at the beginning of the year .

It's been four years since the "A Fixed Rate" video and it's still the best viral financial advice ever.
ON THE SALMON BLOG
It's been four years since the "A Fixed Rate" video and it's still the best viral financial advice ever.
But if things get complicated, rate increases of up to % or % cannot be ruled out. In the worst case we would be talking about a % mortgage, that is, a payment of , euros and double that at the beginning of the year . This would, of course, be total panic mode.

How believable is panic mode? Little at the moment but nothing can be ruled out. The Fed has raised rates twice this year by a total of basis points. The ECB is behind because it does not want to ruin the economy, but these increases could accelerate. The Euribor has risen in just six months from -% to %. They are not factors to rule out any possibility .

Solutions to a possible rate hike
What can a mortgage holder do to protect themselves? Basically having a fixed rate mortgage. And the new mortgage holders know it, since right now more fixed-rate mortgages are signed than variable-rate mortgages. Those who have a variable rate can change the type of mortgage, but the deals that existed six months ago at a fixed rate are no longer there. And today's offers will probably not be available in six months, be careful there too.