EURIBOR

MORTGAGES in Spain really can be cheaper now that the Eurozone interest rate has plummeted?

The EUROBOR at the close of April stood at 0.18%, its lowest ever in its history, having once stood as high as 5.3% at the end of 2007.

The majority of mortgages in Spain are variable rate loans and are re-valued annually, this means a homeowner could save in the region of 284 Euros a year.

Although fixed rate mortgages do exist in Spain, they are rarely asked for since they come with additional costs and any fluctuation is annual, meaning that you have plenty of time to take action if interest rates start to rise.But this rate has not risen in eight years, and in fact, a 90,000 Euro mortgage over a 35 year term would have cost in the region of 500 Euros a month at the beginning of 2007. But by the end of 2014 this would have gone down to approx 288 Euros a month.

Bad news for savers, but great news for homeowners with a mortgage, and economists predict that the EUROBOR is expected to go down even further for the rest of 2015. It could come down to 0.1% by the second half of the year, or even down to 0%.

We saw April’s EUROBOR start at 0.196% and at the end of the month it gradually went down to 0.171%. Economists say that it is a long way below the 0.6% of this time last year, although in practice in the case of the aforementioned 90,000 Euro mortgage, the difference in monthly repayments year-on-year is about 12 Euros.

All variables point to a further fall in the EUROZONE interest rate – the only chance of it going up would be if credit granted became out of control and without proper supervision, which was the problem that led to the global financial crisis.

The Central European Bank is keen to keep the downward trend in order to aid global recovery and low interest rates make it easier for companies, especially small businesses obtain loans as they have more chance of being able to pay them back comfortably.

Overall, it should help increase growth, improve the employment figures and cause salaries to rise. The downside is that a flood of loans may be granted with a very low interest rate, which may not be able to be repaid if the EURIBOR rate rises in a few years time.


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