# Interest rates on falling mortgages

Imagine a scenario, more than likely, of Euribor at 0.3%. Let’s look at an example of how the mortgage payment would change in an upcoming review, always keeping in mind that there are no land clauses in between (if you still have this clause in your deeds, I recommend you seek advice from expert lawyers such as Cristina Borrallo ) .

Take as an example a mortgage loan whose outstanding debt, in the October 2012 review, was 180,000 euros. Let’s put a pending term of 30 years and a variable interest rate of Euribor + 1.25. The fee for last year’s review was 664.42 euros. We assume a one-year Euribor, of October 2013, of 0.3%.

With this data, the resulting fee would be 626.68 euros. A decrease of 5.7%; 37.74 euros less per month, 452.88 annual savings. How can we calculate with the Good Finance online calculator.

## Will mortgage spreads go up?

The differentials that banks apply to finance their own properties are between Euribor + 1 and Euribor + 2, the most competitive. It does not seem very likely that they are going to raise them, since they are the first interested in getting rid of their stock of real estate and if the rates rise, in the end they will lower the price of the property.

As for mortgages to finance houses in the free market, we already have Euribor + 3 and higher rates. In fact, one of the best mortgages of the banks currently has a cheap Euribor + 1.95 interest rate (Bankinter case). They are types of Spanish subprime mortgages during the real estate boom, so that we get an idea.

It does not seem very likely that the spreads will increase further, at least the banks that already have them close to 3%. Another thing is that some bank with a more or less competitive mortgage increases it, which would be possible.

## The current mortgage differentials

In summary, the current mortgage differentials are already at highs, a dangerous maximum when the benchmark increases (we will not always have the Euribor at historical lows, remember that it can be back at 5% in a few years). With the previous example, let’s see how the quota would be if the third year the Euribor stood at 5% (it will not happen next year, but in years seen it may):

Interest rates: 5% + 1.25% = 6.25%.
Debt pending at the time of the review: 170,735 euros.
New fee: 1,077 euros.

If in the next review, the third year, the Euribor were at maximum, the fee would rise to 1,077 euros, from the previous 626 euros. An increase per month of 451 euros . In percentage, an increase of 72%.

## We must always do this type of numbers

Before borrowing. If we can assume these monthly increases, go ahead. But otherwise, mortgaging is a financial risk that we should not assume. Let’s look to save and cheaper houses; and we opt for other forms of access to housing such as rent, for now.

I leave you the economics gathering of IB3 Ràdio today, in which we talk about the ECB rate drop and the consequences for the country’s economy. A large part of the gathering is in Spanish: