Does Converting A Variable Rate Mortgage Into A Fixed One Make Sense?

21 Nov 2022 | Blog

EURIBOR has risen 3 percentage points this year so far, from -0.49% to 2.6%. An increase rate far greater than that registered during the housing bubble, as it took the reference rate 3 years to walk the same path from 2.17% in September 2005 to 5.5% in October 2008. That is to say, mortgages have become more expensive over the last few months at a much higher rate than back then. However, current figures are far from record highs.

In this sense, mortgage holders increasingly consider asking their bank if changing the contract from a variable rate mortgage to a fixed one is possible. The majority of mortgages are reviewed annually, so a constantly rising EURIBOR impacts directly on Spanish mortgages payments. Variable rate mortgages’ main reference rate has moved from the negative into the positive over the last 6 months. Nowadays, an average €150,000 variable rate mortgage over 25 years that needs reviewing will be €228 more expensive monthly, a total of €2,735 more yearly. For this reason, many consumers are negotiating with banks to move to a fixed rate mortgage.

Vicenç Hernández Reche, Tecnotramit’s CEO frames the numbers and assures ‘current interest rates are moderate taking into account the historical series. It now seems like an obstacle for correct financing when coming from a period when EURIBOR was in the negative for a number of years, but this is not the case,’ as stressed by the expert.

Changing from variable to fixed interest rate is possible and very interesting for new mortgages

In a context of rising prices for mortgage financing due to the rate increases motivated by the European Central Bank (ECB), mortgage holders can modify what interest rate regulates their mortgage. Fixed rate mortgage offers with an interest below 3% are scarce. Nevertheless, and even though it is not the same interest rate that could have been signed up 6 months ago, the owner will gain stability on the monthly mortgage cost as all seems to point that this upward trend will go on into the following months. ‘Therefore, we recommend not waiting around and, if a competitive mortgage offer is found, signing at the first possible chance,’ Hernández Reche informs.

Mortgage conditions can always be negotiated during the life of the contract. The mortgage holder’s circumstances and economic power must be taken into account. Either way, changing from variable to fixed rate is ultimately up to the bank,’ as pointed out by Tecnotramit’s CEO. Bank transaction costs to change interest rates can vary between €500 and €1,000.