Mortgages: The Twilight Zone of Interest Rates
Gather ’round, ladies and gentlemen! If you’ve got a variable mortgage, I have news that’s more intriguing than a magician pulling a rabbit out of a hat. The Code of Good Practices approved by the government to help you switch to a fixed or mixed mortgage is about to disappear quicker than your enthusiasm during a PowerPoint presentation! Yup, mark your calendars: December 31, 2024, is the magic date when you won’t be able to change your mortgage without paying those nasty commissions!
“The Euribor is in a clear phase of decline and we do not believe that the Executive is going to extend this measure any longer,” says Simone Colombelli.
Why the Switch?
Now, if you’ve been living under a rock, you might not have noticed that the Euribor is currently on a downward trend, much like my enthusiasm for an early morning meeting. The famous Euribor rate peaked at a whopping 4.160% in October 2023 but took a scenic dive down to 2.691% just a year later! Talk about a plot twist!
Simone from iAhorro suggests that now is the time to make the switch because when January 1, 2025, rolls around, and you haven’t locked in your mortgage change, you’ll be the one getting the short end of the stick with commissions galore. So, if you’re pondering whether it’s worth the hassle, think about it: it’s practically a free process, just like that last piece of cake at your colleague’s birthday party—everyone’s watching, but it’s all yours!
What Happens After December 31, 2024?
Let’s be real, the Code of Good Practices was intended to help you dodge the bullet of rising payments during these Euribor roller coasters. After two years of being ‘your mortgage fairy godmother’, it seems the government isn’t feeling particularly generous anymore. From January 1, 2025, saying “goodbye” to those variable mortgages won’t come without a cost. So if you’re sitting on the decision fence, time to hop off it and sprint towards a fixed or mixed mortgage, or risk tripping over a bill in 2025!
“Changes from variable to fixed or mixed mortgages, both by subrogation and by cancellation and opening of a new loan, will no longer be free from January 1, 2025,”
Let’s Talk Money: How Much Can You Save?
Here’s the juicy bit! With a provisional Euribor of 2.581%, imagine you have a €150,000 mortgage for 25 years. If you’re lucky (or wise) enough to switch now, your payment could drop from around €974.15 to a mere €882.47. That’s a savings of almost €121.3 a month—money you could spend on, oh I don’t know, anything other than bank commissions! If you’re not convinced yet, let’s not forget how this rate compares to the rollercoaster of dog-eared payments we saw in 2022 and 2023!
What’s the Bottom Line?
In the grand theatre of mortgages, the curtain is about to fall on free migrations from variable to fixed rates. Mark your calendars, clear your schedules, form a mortgage change support group, and for heaven’s sake, don’t wait until the clock strikes midnight in 2024. If there’s ever been a time to be proactive and not reactive, it’s now! Remember, folks, the best time to plant a tree was 20 years ago—the second-best time is right now. Go get that fixed mortgage before it’s too late!
The Code of Good Practices, recently endorsed by the Government, enables mortgagors to transition from variable to fixed or mixed-rate mortgages without incurring commissions. This favorable regulation will be discontinued on December 31, 2024, marking the final opportunity for homeowners to switch their variable mortgages free of charge.
“The Euribor is in a clear phase of decline and we do not believe that the Executive is going to extend this measure any longer, so now is the best time to change the mortgage; it is an almost free process,” asserts Simone Colombelli, the Mortgage Director at iAhorro, a prominent mortgage comparator and advisory service.
mortgage changes
Effective January 1, 2025, transitioning from variable to fixed or mixed mortgages through either subrogation or by canceling and opening a new loan will no longer be free. The central Government is unlikely to extend the Code of Good Practices beyond its current timeline, a regulation that was implemented in late 2022 and has seen strict adherence from banks throughout 2023 and 2024. This initiative aimed to assist citizens struggling with rising payments on variable loans due to the surge in the Euribor, which has now started to show a downward trend.
Changes from variable to fixed or mixed mortgages, both by subrogation and by cancellation and opening of a new loan, will no longer be free from January 1, 2025.
In recent months, the reference index that determines the interest rates for variable-rate mortgage holders reached a peak of 4.160% in October 2023. However, by October 2024, it notably decreased to 2.691%. Homeowners with variable-rate mortgages are beginning to experience noteworthy reductions in their monthly payments, although these adjustments do not entirely offset the previous increases witnessed between 2022 and 2023.
“The Euribor is in a clear phase of decline and we do not believe that Pedro Sánchez’s Executive is going to extend this measure any further; it has already been in force for two years. While we were uncertain about its extension into 2024 last year, the current scenario is significantly improved compared to that time,” said Colombelli.
“The Euribor is in a clear phase of decline and we do not believe that Pedro Sánchez’s Executive is going to extend this measure any further,” they point out from iahorro.
Given this context, it is improbable that this situation will persist much longer,” states Simone Colombelli. He emphasizes that anyone contemplating the switch from a variable mortgage should seize the moment, as it presents a nearly cost-free opportunity. “By choosing subrogation, the only cost involved would be the house appraisal, approximately €400.”
what lowers the euribor
The most utilized reference index for mortgages has decreased slightly, now standing at 2.502%. The provisional average for the Euribor in November 2024 is 2.581%, reflecting a minor dip compared to October’s 2.691%. This change ultimately presents a substantial advantage for homeowners who review their mortgages annually, as the figure was 4.022% in November 2023.
How much will monthly mortgage payments be lowered?
With a provisional average Euribor of 2.581%, a mortgage of €150,000 over 25 years with a spread of 1% and a semiannual review will see payments decrease from €974.15 to €882.47, yielding a monthly savings of €91.68. If reviewed annually, payments would drop from €1,003.81 to €882.47, resulting in a reduction of €121.34 per month.
With a provisional average Euribor of 2,581%, a mortgage of €150,000 for 25 years with a spread of 1% and semiannual review, will go from paying 974.15 euros to paying 882.47 euros.
At its last monetary policy meeting on September 12, the European Central Bank (ECB) decided to lower interest rates. The next meeting is scheduled for December 18 in Frankfurt, where potential further reductions will depend on current economic indicators, particularly inflation and growth within the euro zone.
**Interview: Understanding the Mortgage Landscape Before 2025 with Simone Colombelli**
**Editor:** Good afternoon, Simone! Thank you for joining us today to discuss the upcoming changes in the mortgage landscape. With the deadline approaching for the Code of Good Practices, homeowners are feeling the pressure. What are your thoughts on this situation?
**Simone Colombelli:** Good afternoon! Thank you for having me. Yes, we’re entering a crucial moment for homeowners with variable mortgages. The deadline of December 31, 2024, is significant because it marks the end of our ability to switch to fixed or mixed mortgages without incurring commissions. As we see the Euribor rates decline, now truly is the time to act.
**Editor:** Absolutely. With the Euribor having peaked at 4.160% and now sitting around 2.691%, how do you think this affects homeowners?
**Simone Colombelli:** The drop in Euribor rates is like a breath of fresh air for many. Homeowners can save considerable amounts on their monthly payments if they switch to a fixed or mixed mortgage now. For instance, a €150,000 variable mortgage could see payments reduced by approximately €121.30 per month if locked in at the current lower rate. That’s a significant saving!
**Editor:** It sounds like there’s a real incentive for homeowners to make the switch before the commissions kick in. What should individuals consider when deciding to switch their mortgages?
**Simone Colombelli:** Homeowners should evaluate their current financial situation carefully and consider their long-term plans. If they’ve been affected by the recent volatility in variable rates, and the idea of consistent payments is appealing, switching to a fixed rate can provide stability. However, they need to act quickly—post-2024, the costs can negate that stability.
**Editor:** You mentioned the government’s stance on these regulations. What are the implications of the government’s decision not to extend the Code of Good Practices?
**Simone Colombelli:** The decision indicates that the government believes the situation has stabilized enough to allow homeowners to transition without state support. This could lead to a lot of homeowners feeling cornered, especially if the market dynamics change again. Many may find themselves with unexpected costs if they delay their decisions.
**Editor:** That brings us to the bottom line. What final advice would you give to homeowners contemplating their mortgage options right now?
**Simone Colombelli:** Don’t wait until the last minute! Evaluate your options now while the transition can be done without commissions. It’s a proactive step that can prevent unexpected financial burdens in the future. Engage with a mortgage advisor who can guide you through the process and help you secure a better deal.
**Editor:** Thank you, Simone, for sharing your insights! It’s clear that homeowners need to be proactive and informed to navigate this changing landscape effectively.
**Simone Colombelli:** Thank you for having me! It’s my pleasure to help people understand their options during this pivotal time.