People weighing home loans will wonder which path is smarter for buying a house. The iAhorro mortgage comparator recently ran a simulation to compare monthly payments and interest rates. The scenario follows two borrowers: one chooses a variable-rate mortgage in January 2022, the other a fixed-rate mortgage at that same moment.
For calculations, they selected a mortgage of 150,000 euros with a 20-year term on iAhorro, and they compare both fixed and variable options, noting final installments and the total interest paid until the loan closes.
Variable mortgage, a marathon and a volatile product
With a variable rate, the Euribor serves as the main reference for setting interest. A change of 0.99 percentage points needs to be added, which helps determine the final APR. These mortgages are typically reviewed on an annual basis, though sometimes reviews occur quarterly or semi-annually. In practice, a loan contracted in January 2022 would see its first review in January 2023.
Predicting the exact installment for January 2024 is not possible, since the next review for variable-rate housing loans will reflect changing conditions. The head of iAhorro Mortgages warns that variable mortgages are inherently unstable and borrowers should understand this before signing. The goal is not only to look at short-term effects but also to plan long term. Savings should be set aside to cover installments when Euribor rises and payments grow.
To illustrate worst-case assumptions, the scenario assumes Euribor ends 2022 around 3 percent and stays near that level through 2028. The forecast then projects the benchmark could reflect past peaks, stretching from 2028 toward earlier years when rates were at extreme highs.
Under January 2022 conditions, a 150,000 euro variable loan over 20 years with Euribor plus 0.99 percent would start with annual installments around 7, a monthly figure of 657.74 euros. By January 2023, the wage could rise to about 920.11 euros per month. If Euribor remains near 3 percent for five more years, installments would stay above 900 euros per month. If the worst historical years repeat, fluctuations could push payments toward 1,000 euros in the 2031 period. The iAhorro simulation also projects Euribor reaching around 4.564 percent, a number that echoes the late 2000s, and it adds 0.99 percent to that reference to estimate the total rate for the year.
Fixed mortgage, a sprint with limited room for improvement
In January 2022, fixed-rate mortgages were attractive as Euribor was negative, yet fixed rates could still be found around 1 percent to 1.5 percent, resulting in a relatively high fixed APR. Because of this, a sizeable portion of borrowers chose fixed rates at that time. But how much might they pay now?
The analysis shows that someone who took a fixed 1 percent mortgage with a 20-year term in January 2022 would start paying about 689.84 euros per month, roughly 32 euros more than they would have paid with a variable loan at that moment. However, by February 2023, after the recent uptick in short-term rates, a fixed-rate loan would require about 230.27 euros less per month under the same terms. If Euribor continues to rise in subsequent reviews, the advantage of fixed rates grows.
When looking at total interest over the life of the loan, the variable mortgage with Euribor plus 0.99 percent would result in roughly 64,795.01 euros of interest on a 150,000 euro loan over 20 years, in addition to repaying the principal. A fixed-rate loan with a 1 percent APR would incur about 15,561.95 euros in interest, saving roughly 50,000 euros overall.
What is the threshold for paying less with fixed rates?
To determine how much more a fixed-rate mortgage can compensate today versus a variable one, iAhorro suggests that the tipping point lies above 3 percent. In other words, those who signed fixed APRs around 3.8 percent in January 2022 would end up paying almost the same total interest as a variable loan with Euribor plus 0.99 percent. The comparison highlights that the monthly payment for a fixed 150,000 euro loan over 20 years with a 3.80 percent APR would be much higher than the variable option, yet the final interest charges would become similar if rates move unfavorably for the borrower. The takeaway from the experts at iAhorro is clear: the decision hinges on the contract moment and the borrower’s profile. While the variable mortgage has enjoyed favorable periods when Euribor dipped into negative territory, those who benefited then may not see the same lower costs in the future. The message is practical: plan for changes and avoid assuming future rate behavior.