Mortgages: How Much Will the Installment Decrease with a 100-Point Cut (Expected by the Bank of Italy)?

Impact of ECB’s Interest Rate Cuts on Mortgages

For over a year now, the ECB has been pursuing a restrictive policy by raising interest rates in an attempt to contain inflation and bring it back within limits.
This has posed challenges for those in need of credit, such as businesses, who have been forced to deal with higher loan costs.

After multiple rate hikes, the ECB has decided to keep interest rates unchanged for the fifth consecutive time since July 2022.
This indicates a potential decrease in inflation.
Currently, the rate on main refinancing operations stands at 4.50%, the deposit facility rate at 4%, and the marginal lending facility rate at 4.75%.
The good news is the announcement of an upcoming rate cut of 25 basis points in June.

“If things continue to trend as they have in recent weeks, the ECB will ease its restrictive monetary policy stance in June,” stated Luis de Guindos, Vice President of the ECB.

If the inflation decline persists throughout the year, by the end of 2024, interest rate cuts could potentially reach up to 100 basis points, depending on inflation.
Naturally, this will also benefit those with mortgages as borrowing costs would decrease.
Here are the forecasts.

Expected Savings on Mortgages with Interest Rate Cuts

Following two years of increases, fixed-rate mortgages are starting to become more affordable.
Those facing high rates in the coming months could consider loan portability, switching their mortgage to another bank offering better terms.

However, the most significant impact of interest rate cuts will be felt on variable-rate mortgages.
The National Consumers Association estimated a decrease of around €48 per month on variable-rate mortgages compared to the peak in November 2023, resulting in annual savings of €576.

The monthly payment for variable-rate mortgages is expected to decrease by at least €20-40 in June and by an additional €30-50 in December.

Let’s consider a mortgage taken out in January 2022 with a 25-year term and an amount of €126,000.
By December 2023, the monthly payment reached €752.
With an initial 50 basis point cut, the payment would drop to €712, €40 less.
If the cuts reach 100 basis points by the end of the year, the December payment could decrease to €657, nearly €100 less.

This represents significant savings for many Italian families with mortgages during this challenging period for loans.
Fortunately, it seems that the worst may be over.