Mortgages, this is how much the installments will increase if the ECB raises rates again

Two more rate hikes, of 0.25% each, are expected from Frankfurt in May and June. If so, by how much would the monthly payment of variable mortgages increase? And the offers on the new fixed-rate loans? We’ll do the “accounts in your pocket” with some concrete examples

Higher installments in sight for variable rate mortgages, but also more expensive offers for fixed rate mortgages if, as appears probable, the ECB will raise again the cost of borrowing in May and June, both times by 0.25%. Yes, but how much will the impact be?

Let’s do the “pocket accounts” for families who have a real estate loan in place (or are about to take one out). Recalling that in Italy there are approx 3.7 million households with mortgagesof which the great majority (about 3 million) chose the fixed rate, a method which has therefore returned to represent (after a decline in the second half of 2022) around 80% of the contracts requested.

The “overtaking” of the variable rate

Let’s first look at the initial situation: in March the variable rate surpassed the fixed rate, becoming more expensive. It’s a very rare event: in the last 10 years, it occurred only in September 2019, the only other month of the decade in which the average variable rates had exceeded the fixed ones (they were at 1.14% against a variable at 1.23%). Usually, therefore, variable rates have (at least initially) lower rates, because I already carry the risk of future increases with me (with fixed, on the other hand, I “pay” the security of an installment that will never change again).

Considering the average TAN (nominal annual rate) over 20 and 30 years, the difference in March was 4 basis points in favor of the fixed rate (3.80% vs 3.76%), on the best offers it reached 9 basis points (3.08% vs 2.99%).

The data for the first part of April also confirm this anomaly: taking for example a widespread maturity, 20 years, it can be seen how the Euribor rate (on which variable mortgages are calculated) costs over 3%, while the IRS (reference rate for fixed assets) remains below this threshold.

The simulations for May and June

Let us now look to the next two months, in which the two price increases of the ECB are expected (which according to the experts could be the last of this phase, which started almost a year ago: the first tightening was in July 2022). With the cost of borrowing another 0.5% higher (compared to the current 3.5%), the installment of a variable loan of 160,000 euros and a 30-year maturity it would go from 701 to 746 euros, according to the simulations by Mutuionline: a supplement of 45 euros per month, or 6.4%). The increase compared to April 2022, exactly one year ago, would be 57%.

Higher installments between 20 and 45 euros

Let’s try to do the math also for smaller mortgages and shorter duration. examined a 126,000 euro loan to be repaid over 25 years, signed in January 2022 with an initial rate of 0.67% (the TAN, made up of the 3-month Euribor interbank rate – the rate at which Eurozone banks exchange money with each other – plus the spread that the bank adds for itself of 1.25%). With another 0.5% more established by the ECB, the rate would rise to 4.4%, and it would go from 674 euros in the April installment to 693 euros in the July installment, almost 20 euros more.

Finally, taking as an example the even shorter term, 20 years, Mutuionline calculates that (again for a 160,000 euro mortgage), in the event of two more 0.25% increases from the ECB, the installment could reach, in the third quarter of 2023, share 936 euros, a good 34.3% more than in April 2022 (when he traveled just under 700 euros) and 41 euros more per month than today.