Interest rate reduction will come to a halt again, but installments payable to the bank will decrease

Interest rate reduction will come to a halt again, but installments payable to the bank will decrease
Interest rate reduction will come to a halt again, but installments payable to the bank will decrease
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After the Euribor rates fell in January for 3, 6 and 12 months, in February and March the behavior changed. In March, the three-month average monthly rate remained unchanged compared to February, in the six-month period there was a reduction and in the 12-month period there was even an increase. Even so, anyone who has a mortgage loan to be reviewed in April should see a slight decrease in the installment payable to the bank. Check your case

The uncertainty about when the European Central Bank (ECB) will start lowering its key rates is leading to Euribor rates having interrupted the downward movement that began at the beginning of the year. In March, the behavior of these rates was even different for each of the main maturities, with the three-month rate remaining unchanged in relation to February, the six-month rate decreasing and the 12-month rate registering a slight increase.

Despite this Euribor behavior, holders of home loan contracts whose contract is reviewed in April should register a slight decrease in the installment payable to the bank. A decline that occurs because, on the one hand, the monthly Euribor average for March that serves as the basis for the April review will be compared with the rate in force since the last review, that is, the average for December 2023 in indexed contracts 3-month Euribor, the average of September 2023 in contracts indexed to 6-month Euribor and the average of March 2023 in contracts indexed to 12-month Euribor. And on the other hand, because in addition to comparing interest rates, it is also important to consider that the amount owed also decreases over the period considered.

The simulations carried out by CNN Portugal based on the Banco de Portugal simulator allow us to verify that in all deadlines there is a reduction in the installment payable to the bank. In the case of contracts indexed to Euribor 3 and 6 months, in addition to the reduction in the amount owed, there is also a reduction in the interest rate resulting in a reduction in the installment. And in contracts indexed to the 12-month Euribor, despite there being a slight increase in the interest rate between March of last year and March of this year, the decrease in the capital outstanding is enough for there to be a reduction in the installment.

Thus, in a contract worth 150 thousand euros, 30 years, indexed to Euribor 12 months and with a spread (bank margin) of 1%, the installment in the last 12 months was 773 euros. In April, you will pay 763 euros, a drop of 10 euros that is fully justified by the fact that the outstanding capital is, after a year, just over 147,600 euros. If the comparison is made without reducing the capital outstanding, the installment increases as a result of the increase in the interest rate.

See your case:

How much has already increased and how the house payment will evolve in April

30-year loan with 1% spread

EURIBOR 3 MONTHS

Loan of 25 thousand euros
paid Variation
April 2023 118.07
July 2023 126.65 8.58
October 2023 131.28 4.63
January 2024 131.59 0.31
April 2024 130.95 -0.64
Face increase a year ago 12.88
Loan of 50 thousand euros
paid Variation
April 2023 236.15
July 2023 253.29 17.14
October 2023 262.55 9.26
January 2024 263.17 0.62
April 2024 261.91 -1.26
Face increase a year ago 25.76
Loan of 75 thousand euros
paid Variation
April 2023 354.22
July 2023 379.94 25.72
October 2023 393.83 13.89
January 2024 394.76 0.93
April 2024 392.86 -1.90
Face increase a year ago 38.64
Loan of 100 thousand euros
paid Variation
April 2023 472.30
July 2023 506.58 34.28
October 2023 525.10 18.52
January 2024 526.34 1.24
April 2024 523.81 -2.53
Face increase a year ago 51.51
Loan of 125 thousand euros
paid Variation
April 2023 590.37
July 2023 633.23 42.86
October 2023 656.38 23.15
January 2024 657.93 1.55
April 2024 657.77 -0.16
Face increase a year ago 67.40
Loan of 150 thousand euros
paid Variation
April 2023 708.45
July 2023 759.88 51.43
October 2023 787.65 27.77
January 2024 789.51 1.86
April 2024 785.72 -3.79
Face increase a year ago 77.27

EURIBOR 6 MONTHS

Loan of 25 thousand euros
paid Variation
April 2023 123.23
October 2023 133.54 10.31
April 2024 130.55 -2.99
Face increase a year ago 7.3
Loan of 50 thousand euros
paid Variation
April 2023 246.47
October 2023 267.09 20.62
April 2024 261.1 -5.99
Face increase a year ago 14.6
Loan of 75 thousand euros
paid Variation
April 2023 369.7
October 2023 400.63 30.93
April 2024 391.65 -8.98
Face increase a year ago 22.0
Loan of 100 thousand euros
paid Variation
April 2023 492.94
October 2023 534.18 41.24
April 2024 522.2 -11.98
Face increase a year ago 29.3
Loan of 125 thousand euros
paid Variation
April 2023 616.17
October 2023 667.72 51.55
April 2024 652.75 -14.97
Face increase a year ago 36.6
Loan of 150 thousand euros
paid Variation
April 2023 739.4
October 2023 801.27 61.87
April 2024 783.3 -17.97
Face increase a year ago 43.9

EURIBOR 12 MONTHS

Loan of 25 thousand euros
paid Variation
April 2023 128.86
April 2024 127.89
Face increase a year ago -1.0
Loan of 50 thousand euros
paid Variation
April 2023 257.53
April 2024 255.78
Face increase a year ago -1.7
Loan of 75 thousand euros
paid Variation
April 2023 386.59
April 2024 383.66
Face increase a year ago -2.9
Loan of 100 thousand euros
paid Variation
April 2023 515.46
April 2024 511.55
Face increase a year ago -3.9
Loan of 125 thousand euros
paid Variation
April 2023 644.32
April 2024 639.44
Face increase a year ago -4.9
Loan of 150 thousand euros
paid Variation
April 2023 773.19
April 2024 763.23
Face increase a year ago -10.0

NOTE 1 | What are Euribor rates

Euribor is the abbreviation for Euro Interbank Offered Rate. Euribor rates are based on the interest rates that a set of European banks are willing to pay to lend money to each other. In the calculation, the highest and lowest 15% of all collected quotes are eliminated. The remaining rates are calculated as an average and rounded to three decimal places. The value of Euribor rates is determined and published daily. There are five different Euribor rates, all with different maturities (one week, one month, three months, six months and 12 months).

NOTE 2 | The ECB has three reference interest rates:

– The rate for main refinancing operations, under which banks can borrow from the ECB for a period of one week: is 4.50%, but was set at zero between March 2016 and July last year;

– The deposit rate, which determines the interest that banks receive on deposits made with the ECB: is 4%. But between July 2012 and June 2013 it was zero. And between June 2013 and July last year it was negative, forcing banks to pay for the deposits they made with the ECB;

– And the liquidity provision rate, which determines the interest that banks pay when they take out loans from the ECB for a period of one day (overnight). It is currently at 4.75%.

The article is in Portuguese

Tags: Interest rate reduction halt installments payable bank decrease

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