Who will buy or buy a house will wonder HE mortgage better nowJust like the economic situation in our country. To answer this great question from the iAhorro mortgage comparator they made a simulation where they compare monthly installments and interest rates It is paid by one person who decides to take out a variable mortgage in January 2022, and another person who decides to take a fixed mortgage at that very moment.
To do the calculations, they choose a mortgage on iAhorro. 150.000 Euro with 20-year paybackcompare both fixed and variable rate and final installments and the interest the landlord will pay until the loan is closed.
Variable mortgage, a marathon and “unstable” product
In variable rate mortgage, Euribor (the most used reference index for calculating variable interest) A difference of 0.99% needs to be added Being able to calculate the final TIN (one of the most common among mortgage holders in Spain). These types of mortgages may be reviewed quarterly, semi-annually, or annually, but the most common is to have this review done exactly every year. For this reason, A mortgage contracted in January 2022 will be reviewed in January 2023..
Of course, it is not possible to predict which installment will be paid as of January 2024, when the next review will be made for variable rate housing loans. So much so that Simone Colombelli, director of iAhorro Mortgages, warns that “variable mortgages are an unstable product and you should know this well before you enter into a contract and not only look at how it will affect us in the short term, but also in the long term”:It is a product that will help you stay calm.; Like a marathon, it’s a journey where you have to be aware of the changes that may affect you, learn to resist when Euribor and our quota get too high. In addition, it is important that savings are prepared in periods of decline in order to meet the installments in periods when Euribor is on the rise.
So much so that they chose to put themselves in the worst case in the benchmark: The government will have Euribor at the end of 2022. would remain around 3% until at least 2028, so they accept this forecast to make calculations for the next five years. From there they take the worst years the reference index has ever recorded to calculate quotas, so they pretend to repeat what happened from 2028 to 2011 in 1999 (the year Euribor was introduced).
In this way, in January 2022, Euribor + 0.99% interest rate, 150.000 Euro variable loan over 20 years, and the annual review started to pay 657.74 Euro in installments, but you will see how the amount is in January 2023. the salary increases to 920.11 euros each month. Also, if Euribor stays around 3% for another five years, its installments will not fall below 900 euros per month during this period. If Euribor’s worst years were repeated, we would see more fluctuations in installments from 2028, which would even reach 1,000 euros in 2031. Then, according to the iAhorro simulation, Euribor would reach 4.564%, the same figure that came in January 2001. It will be necessary to add 0.99% differenceso that the interest rate that year would exceed 5.55%.
Fixed mortgage, a sprint with few improvement options
In January 2022, when the assumption made by the mortgage comparator began, variable mortgages were attractive as Euribor was negative, but fixed mortgages could also be found around 1% or 1.5, which is a very high TIN, low and noticeable. For this reason, a significant portion of those who had mortgages at that time chose the fixed mortgage. However How much will they pay now?
Anyone who bought a fixed 1% mortgage with 20 years repayment in January 2022 would start by paying a fee of 689.84 euros, 32.10 euros more than they would have paid initially if they had signed a floating mortgage. But if we make a comparison with what you will pay now in February 2023 after the increase in the variables last month, we see that a fixed fixed already pays 230.27 euros less under the same conditions mentioned above. And if Euribor continues to rise in subsequent reviews, this difference will grow in favor of fixed-rate mortgage buyers.
This is also very clear when calculating the total interest each will pay on the loan: Euribor + 0.99% difference, taking into account the previous simulation, the person signing a variable mortgage of 150,000 Euros over 20 years, would pay a total of 64,795.01 Euros of interest., in addition to returning the 150,000 euros owed to the bank. If the contracted loan is fixed with 1% tax, it will pay 15,561.95 euros of interest, and will save about 50,000 Euros.
What is the flat rate limit to pay less?
To find out how much more a fixed mortgage currently compensates for than a variable mortgage, they calculate from iAhorro: “the limit would already be well above 3%”, according to the comparator’s Mortgages director. Thus, they show that those who signed a mortgage agreement with a fixed TIN of 3.8% in January 2022 will pay at the end of the mortgage almost the same interest as they would have paid if they had signed a variable mortgage with the Euribor TIN +. 0.99%
In this case, the monthly installment of a fixed mortgage of €150,000 over 20 years with a TIN of 3.80% began to be much higher than that of a variant with a TIN of 0.513% (-0.477% of Euribor at the time). moment + 0.99% difference), same amount and term: variable fee of 657.74 euros compared to 893.24 euros fixed fee. However, the volatility of the reference index of the variable mortgage and the stability of the fixed mean that the interest payable at the end of the loan’s life is very similar: €64,795.01 for the variable and €64,377.73 for the fixed mortgage.
Therefore, the conclusion is, as Simone Colombelli concludes, “If the 3.80% interest rate is exceeded, the fixed mortgage will not be profitable compared to the variable one, although at this very moment there is no better mortgage than the other, it depends largely on the moment of the contract and the profile of the user”. Of course, the expert at mortgage comparison tool iAhorro states: “The variable mortgage has had very good times (Euribor was negative between February 2016 and April 2021) and whoever took advantage of them eventually paid less interest on their mortgage than anyone else. We don’t know; new mortgagee can’t count on it”.