How to protect your variable mortgage against the rise of Euribor

The holders of variable mortgages face in recent weeks a situation similar to that experienced after the start of the Russian invasion of Ukraine. The war that began with the attack by the United States and Israel on Iran has generated an impact on the international economy that has been reflected in the Euribor.

The benchmark index has gone from 2.2% to exceed 2.5% in a few days, which opens the possibility of an increase in fees in the next revisions, especially if the conflict prolongs and the upward trend is maintained.

Given this scenario, the experts of the financial comparator HelpMyCash point out that there are different alternatives to cushion or avoid the increase in the mortgage payment.

Early amortization to reduce installment or interest

One of the most direct options is early amortization, which consists of advancing part of the outstanding capital of the loan.

This measure, they explain, allows to reduce the monthly payment or shorten the repayment period. In the first case, the impact translates into a lower monthly burden, while in the second it is possible to pay less interest in the long term.

However, this option requires having prior savings. The comparator recommends maintaining an emergency fund equivalent to between three and six months' salary. In addition, the operation may entail a commission of 0% or 1%, according to what is established in the mortgage deed.

Change from variable mortgage to fixed rate

Another alternative is to convert the variable mortgage into fixed, thus eliminating dependence on Euribor and ensuring a stable payment. At HelpMyCash they indicate that there are still entities that offer fixed rates around 2.5%, although they warn that the trend is upwards.

The change can be made through a novation with the current bank, a subrogation to another entity, or the contracting of a new fixed mortgage to cancel the previous one.

In the first two cases, the cost includes the appraisal (around 300 euros) and a maximum commission of 0.05% during the first three years. In the third, the appraisal, an early repayment commission of up to 1%, and the registration cancellation fees, which are around 1,000 euros, are added.

“To access these options, it is necessary to have a solvent financial profile, with job stability, sufficient income, and a debt level that does not exceed 80% of the value of the home,” they comment. Otherwise, there is the possibility of switching to a mixed mortgage, with stable installments during a determined period.

Reduction of the differential

For those who prefer to maintain a variable mortgage, another option is to negotiate a reduction of the spread, that is, of the percentage that is added to the Euribor to calculate the interest. This modification can be achieved through novation, subrogation or the signing of a new mortgage loan, experts report.

The costs are similar to those of the change to fixed rate: appraisal and a commission that usually ranges between 0% and 1%, depending on the conditions signed.

This option can be especially advantageous for those who signed their mortgage between 2016 and 2022, when spreads were close to or above 1%, compared to current ones, which are around 0.60% or even below 0.50%.

Modify the term or negotiate grace periods

The mortgage holders who do not have savings or a financial profile that allows other modifications can choose to negotiate with their entity a change in the repayment period.

Extending the term allows reducing the monthly installment, although it implies paying more interest in the long term. Likewise, it is possible to agree on a grace period, during which the principal is not paid or even the entire installment.

This modification requires the bank's approval and entails associated costs, such as the appraisal and a commission of between 0% and 1% on the outstanding capital, according to the deed.

Code of Good Practices for the most vulnerable

For cases of greater vulnerability, there is the possibility of adhering to the Code of Good Practices, a set of measures of mandatory application for financial entities when certain requirements are met. Among the included measures are a five-year capital grace period, the reduction of interest up to Euribor minus 0.10%, and the extension of the term up to a maximum of 40 years.

The basic requirements include annual income of up to 25,200 euros per family unit, that the mortgage payment exceeds 50% of income, and that there has been a significant alteration of the economic situation in the last four years.

In case of not meeting these conditions, the bank is not obliged to apply these measures, although in HelpMyCash they recommend requesting them anyway before a default occurs.

Likewise, the affected parties can resort to mortgage intermediation offices, public services of city councils and autonomous communities that act as mediators between client and financial institution to facilitate agreements.