Early Repayments of Housing Loans: A Powerful Tool against Rising Euribor

Las early repayments of housing loans have become one of the main tools for those mortgaged at a variable rate to combat the rise in the Euribor. Yes, according to data compiled by BBVA Research from those managed by the Bank of Spain, between May and December of last year they reached, on a monthly average, 6,000 million euros, 33% above the same period of the previous year; in February they increased by 48% compared to the same month of 2022 and reached 7,200 million eurosaccording to the latest data published yesterday by iAhorro and collected by the Mortgage Association (AHE) and the Bank of Spain.

According to the daily Euribor data, the indicator could close May slightly below 4%, which represents a year-on-year increase of more than three and a half points from the 0.287% registered a year earlier, which implies large increases in quotas for who must review them annually or semi-annually. To have a clearer idea of ​​the savings that these amortizations represent in a situation like the current one, iAhorro gives the example of a variable mortgage of 150,000 euros contracted in May 2019 with a differential of 0.99% + Euribor and a repayment term 30 years old. If the holder of this loan decides amortize 10,000 euros with the euribor of Maywhich would be around 3.808%, The savings would be around 7,827.46 euros in interest if the fee is reduced and up to 23,369.58 euros if the term reduction is chosen.

The increase in mortgage repayments in recent months is reflected, according to iAhorro, in the data from Outstanding balance in loans from housing credit institutions contributed each month by the Bank of Spain. As of July 2022, when the outstanding balance reached its maximum point of the last two years, with 519,129 million euros, a clear turning point is seen: it went down to 508,477 million euros in February 2023. The latter This data suggests a decrease of almost 1.26% in the outstanding balance in mortgages on homes in Spain in one year, from 514,662 million in February 2022. And if the data advanced by the Bank of Spain for the March 2023, the decline continues to 507,320 million.

As for the most appropriate time to repay, from iAhorro they advise doing it in the first years of the mortgage if the money is available. “The amortization system that we use in Spain is the French one whereby, during the first years of the mortgage loan, more interest is paid than capital and, at the end of the life of the mortgage, this is reversed: more capital is paid than interests. Thanks to this, 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 paying off in the fourth you pay off in the second…”, says Simone Colombelli, iAhorro’s mortgage director. From the comparator, it also recommends reducing the term instead of the monthly payment because the interest savings are greater for the mortgaged person.

Along with mortgage amortization, mixed-rate mortgages have also rebounded strongly in recent months, combining an initial fixed interest with a later variable interest rate; as well as the changes in search of fixed-rate loans at a good price that, although increasingly scarce, can still be found. In addition, subrogations and novations have also skyrocketed in search of better conditions for loans.