Mortgages, move from variable to fixed rate. How to do it and how much do you save?

Mortgages, switching from variable to fixed rate is an option that mortgage holders can exercise under certain conditions.
The rising inflation between 2022 and 2023 has had serious repercussions on mortgages.
The European Central Bank began to increase interest rates from July 2022, bringing them to 4.5%, regardless of the inconvenience and difficulties for families who now find themselves having to pay very heavy instalments, with the reference Euribor rate for the variable mortgage which, from negative, shot up to 3.80% monthly in just over a year.
Thanks to the aggressive interest rate policy launched by the ECB, fixed income has temporarily become more convenient.
This means that the Euribor race is not over and will impact the monthly installments with probable further increases.
How to make the transition from variable to fixed? Can you really save money? Below are some calculations for switching from a variable to a fixed mortgage to understand how much the monthly installment costs.
Mortgages, how to switch from variable to fixed rate The possibility of transforming your mortgage from variable to fixed rate provided for by the 2023 Budget Law is an opportunity that can guarantee greater financial stability in the long term.
The rule relaunched by the Meloni Government in last year's maneuver allows you to renegotiate the rate of your mortgage with the bank, moving from variable to fixed, in the presence of particular conditions (financing up to 200,000 euros, ISEE up to 35,000 euros, no delay in payment of the previous installments).
The procedure requires that the new fixed rate be selected between the lower of the 10-year IRS and the IRS equal to the residual duration of the current mortgage, to which is added the spread agreed in the mortgage contract.
For example, if the mortgage is for 30 years and two years of installments have been paid, you will look at the 25-year IRS, now at 2.86%, opting for the lower of this and the 10-year IRS.
Currently the 25-year IRS stands at 2.86% and is lower than the 10-year IRS, equal to 2.96%.
With a spread of 1%, the borrower would get a fixed rate of 3.86%.
The new rate will lock in the payment for the entire duration of the mortgage, offering a long-term advantage.
The transformation opportunity is particularly relevant for young people who signed up for a variable rate after June and now find themselves managing a long to value variable rate mortgage.
For this category, which cannot replace the mortgage, the window offered by the new rule is an important opportunity.
It should be underlined that the transformation process is not a subrogation, but a renegotiation with your bank.
The borrower can request the transformation by presenting the ISEE and verifying that the residual debt is under 200,000 euros, without the need for notary intervention.
Furthermore, this possibility is valid until December 31st, unless extended with the next budget law.
Those who take advantage of this opportunity will be able to avoid the future increases expected for variable mortgages in 2023, guaranteeing greater financial stability over time.
However, it is essential to make careful calculations before proceeding, since the new fixed rate may not be lower than the variable one you want to abandon.
Switching from a variable rate to a fixed rate does not automatically guarantee savings, since the rate applied will be the updated one (therefore also higher) and not the one calculated at the beginning of the mortgage contract.
Despite this, the choice of fixed offers immunity to future rate increases.
How much you save on the mortgage from variable to fixed If you meet the required requirements, you can therefore opt for the change from variable to fixed mortgage.
To calculate the new rate, you must start from the Eurirs index also known as Interest Rate Swap (Irs), the interbank reference rate for fixed rate mortgages and specifically from the 10-year value.
At this point, the IRS referring to the residual duration of the mortgage is also taken (if I have a 30-year mortgage that started 5 years ago, the 25-year Eurirs is taken), taking the lower of the two.
The spread applied to the variable mortgage that you now want to change is added to the rate obtained and the new parameter for the installments is obtained.
Some examples can clarify the savings.
read also Mortgage alert, rates can reach 6%: here's what's happening The convenience of switching to a fixed rate mortgage from a variable one must therefore be evaluated on a case-by-case basis.
According to an analysis by, for example, two mortgages can be compared, at a fixed rate and a variable rate, for a loan of 140,000 euros for the purchase of a 200,000 euro house over 20 years.
In the case of a fixed rate of 4.1% the monthly payment is 856 euros.
In comparison, the 20-year variable mortgage, with an average of 4.90%, would involve an installment of 919 euros.
The fixed rate mortgage in this case would lead to an immediate saving of 63 euros per month.
Similarly, the 30-year fixed rate stands at 4.1% with an installment of 677 euros, while the 30-year variable mortgage, with an average of 5.1%, translates into an installment of 760 euros.
The fixed rate in this case brings a monthly saving of 83 euros.
These data clearly highlight how the transition to landline can guarantee greater financial stability and significant savings over time.
The new rates calculated as fixed thanks to this transition allowed by the maneuver are therefore lower than the 6% of the variable mortgage expected with the ECB policy.

Author: A.W.M.

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