Households allocate 12,000 million to early mortgage repayments in 2022
Between January 2022 and March 2023, families reduced their mortgage obligations ahead of schedule by paying more than required in their monthly installments. This early payoff accounted for 9.2 percent of the variable-rate mortgage balance available at the end of 2021 and 6.4 percent of the fixed-rate portfolio. Households earning higher annual incomes, specifically those above 47,199 euros, prepaid more than expected by 11.7 percent for variable-rate loans and 7.3 percent for fixed-rate loans. In contrast, families earning fewer than 30,596 euros prepaid 7.2 percent and 5.4 percent, with similar patterns observed in other income bands. The data clearly show that higher economic resources enable greater capacity to allocate savings toward debt reduction.
The Bank of Spain notes that the rise in variable-rate mortgage costs provided a strong incentive for early redemption, even as liquidity remains a key factor. Before 2022, ultra-low rates made debt financing appear economical, but last year’s higher loan installments shifted the logic toward paying off debt rather than accumulating deposits. On average, a broad mortgage portfolio observed from the bank rose from 1.1 percent in January 2022 to 2.13 percent by December, and to 3.19 percent by last June, drawing attention to the movement toward higher deposit yields, now showing a wider gap with loan rates.
Fewer fees or terms
The faster pace of household repayments reflects the favorable policy allowing early mortgage repayment. By cutting the monthly quota or shortening the loan term, families can reduce interest costs over the long run. Bank of Spain data indicate that extraordinary pandemic-era savings were increasingly redirected toward debt payoff, with a portion equivalent to about 1.3 percent of gross disposable income being applied to early repayments, a trend that rose from 2021 into 2022.
Since 2014, households have amortized a portion of their debt roughly every three months, typically about 2.1 percent of outstanding debt through both regular and early payments. Last year, the momentum intensified, driven mainly by early repayments. In the first quarter of the year, about 11,500 million was prepaid, followed by around 16,090 million in the second quarter, and a recurring level near 16,100 million for January through March 2023. Overall, families prepaid roughly 54,700 million last year, a figure comparable to new home purchase financing provided by the business sector. As a result, the mortgage portfolio began to shrink, with continued declines into the second half of the prior year and into the current year.
no commission
Banks confirm the trend of increased early repayments. Many families with savings tapped their assets to cover higher mortgage installments, while those with substantial deposits in major urban areas were comparatively better positioned to reduce or settle their quotas. In other regions, the pace varied, reflecting differences in income levels and housing costs. A policy agreement reached in late November between the economy ministry and the banking sector allows customers to reduce or settle variable-rate mortgages without commissions in 2023, with fixed mortgages requiring a different approach due to contractual terms. The shift toward converting variable-rate loans to fixed-rate arrangements also arose as a practical response to the rate environment.
Overall, the evolving landscape shows households actively managing debt, aided by policy measures that ease early repayment of mortgages and by the improved capacity to allocate savings toward debt payoff. This dynamic has contributed to a gradual reduction in the overall mortgage balance held by banks, signaling a cautious but clear trend toward stronger household balance sheets as rates evolve.