The Euribor today seems not to hit the ceiling and continues to climb during this month of May. This Thursday the average already exceeds 3.8%, with the feared 4% getting closer. Uncertainty begins to seize the mortgaged people who are looking for formulas to try to lower the letter in the face of future revisions. Anyone who has a current mortgage and, in addition, has money saved, can always use it to pay part or all of the loan, that is, pay off their mortgage. In the event that the amortization is partial, the mortgaged person may reduce either the fee that he pays each month or the term established at the beginning to finish paying his debt with the bank beforehand.
Which option is better and when is a good time to pay off? The director of Mortgages of the comparator and mortgage adviser iAhorro, Simone Colombelli, assures that “it is always better to repay a variable mortgage when our money has more value for the bank, that is, when the Euribor is high”, since in this way the savings in interest payments over the life of the loan will be much greater. The Euribor is the reference index by which variable mortgages are governed and which, added to a differential agreed with the bank, marks the interest rate of the loan.
How to save on the mortgage with the Euribor soaring
To see it more clearly, from iAhorro they compare the savings in interest that a mortgaged person who wants to partially repay their mortgage can get now, with the high Euribor, compared to if the same repayment were made with a lower Euribor.
For this, they take as a reference a variable mortgage of 150,000 euros contracted in May 2019 with a differential of 0.99% + Euribor and a repayment term of 30 years. When doing the calculations, they explain that if the user repays 10,000 euros now, just four years after taking out their mortgage, with a Euribor of 3.808% (the average registered by this indicator today) they would save a total of 7,827.46 euros in interest if you prefer to reduce the fee. However, the savings would increase up to
Likewise, if instead of being 3.808%, the Euribor now registered the same value that marked E 2022, that is, 0.287%, the savings would be less: 1,822.16 E. UROS when amortizing installment and 3,899.99 Euros when amortize term, which would also be reduced by two years and three months.
What happens if you pay off the mortgage?
As they say from the mortgage comparator, “in order to repay the most important thing is to have an amount of money saved and once we have it, we also have to know how to choose the right time to allocate it to repay the mortgage.” When is that best time? Colombelli advises “always amortize during the first years of the mortgage” because “the amortization system that we use in Spain is the French amortization system whereby, during the first years of the mortgage loan, more interest is paid than capital and, at At the end of the life of the mortgage, this is reversed: more principal is paid than interest.”
Therefore, he adds, “if instead of amortizing in the tenth year of the mortgage you do it in the fourth, the savings that you can have in interest will be much greater; and the same will happen if instead of amortizing in the fourth, it is amortized in the second.”
How much will my mortgage raise?
The rise in the Euribor makes many of those with mortgages who still have to renew this year wonder, how much will my mortgage go up? On the one hand, the installments of the variable mortgages are increasing with each review, but on the other “the amortizations are now much more profitable than when this indicator was negative”, declares Simone Colombelli.
And this is also reflected in the data handled by both the Spanish Mortgage Association and the Bank of Spain. In February 2023 (the last month for which there is data), the amortized balance of mortgage loans for housing in Spain increased by 48% compared to February 2022: it went from a total of 4,878 million euros to 7,200 million euros. euros this year.
This increase in the amortized balance is also reflected in the data on the outstanding balance of loans from housing credit institutions provided by the Bank of Spain each month. This suggests a decrease of almost 1.26% in the outstanding balance in mortgages on homes in Spain in one year, from the 514,662 million registered in February 2022. In addition, this decrease continues: the Bank of Spain has already announced that in March 2023 is at 507.320 million.
With all this, from iAhorro they conclude that “despite the fact that with the rise in the CPI the money saved is worth less and the difficulties in reaching the end of the month are greater, there are many people who are choosing to allocate that savings to amortize, even if it is a small part of your mortgage, either to get more relief each month or to finish paying it off as soon as possible.”