The European Central Bank (ECB) recently decided to cut interest rates again, reducing by 25 basis points the deposit rate, which now stands at 3.25%. This is the third intervention of this type during the year, after those in June and September.
This decision will have a significant impact on the world of mortgages, especially for those who have chosen a variable rate loan. But what will the concrete effects be for Italian families and what can we expect for the future?
Advertisement – Advertising
Variable rate mortgages: how do the installments change?
For i fixed rate mortgagesthe new ECB intervention will not have immediate effects, but for those who have opted for a variable rate, there is no shortage of good news. The installments, in fact, will begin to fall.
A concrete example can help to better understand this dynamic: those who signed up for a contract in January 2022 variable rate mortgage of 140,000 euros for a duration of 30 years, with a rate indexed to the 3-month Euribor plus a spread of 0.9%, saw its installment significantly increase during 2023.
If at the beginning of the year he paid an installment of around 409 euros, this rose to reach a maximum of 710 euros in November 2023.
However, with the recent cuts made by the ECB, this trend is reversing: already with the September intervention, the installment was reduced to around 687 euros, and the new cut should bring it around 667 euros.
Advertisement – Advertising
Future projections: further relief for borrowers
Market forecasts indicate that theEuriborthe key parameter for variable rate mortgages, could fall further in the coming months. It is estimated that the 3-month Euribor could fall below 3% by December 2024, and even below 2% by the end of 2025.
Consequently, those who today pay an installment above 650 euros could find themselves, at the beginning of 2025, paying around 642 euros, with a further drop to around 578 euros by the end of the year.
These scenarios represent significant savings compared to the peaks reached in 2023, and offer a breath of fresh air for families who have seen their payments increase in recent years.
Advertisement – Advertising
Zero interest rates: a distant memory?
Despite the prospect of lowering installments, experts warn that it is difficult to return to the extremely low rates of the 2015-2021 period, when variable rate mortgages were at historic lows. The era of zero interest rates, favored by Mario Draghi’s presidency at the ECB, now seems to be over.
Today, even if conditions are improving, those with a variable mortgage will have to deal with a higher level of installments compared to pre-pandemic levels.
In conclusion, the new rate cut decided by the ECB represents good news for variable rate borrowers, but it is important to have realistic expectations: there will be no return to pre-crisis levels, even if the installments are gradually lowering.
Do you have an adjustable rate mortgage? Find out how these changes could affect your financing.