October 24, 2020

Can I get to lower the amount of my mortgage?


Gabriel writes us with the following query: “I am paying a mortgage with a Euribor interest + 3%; now that this index is at a minimum, which makes me happy, because I pay much less interest, the question arises that if the decline continues, one day later I may have to pay a negative total interest, and this would have repercussions in a reduction of my mortgage. Is this situation possible? ”

Euribor Plus: what is it, why does it take so many Spanish people asleep?

Euribor Plus: what is it, why does it take so many Spanish people asleep

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With a minimum historical valuation of -0.415%, the Euribor seems to have no soil; there is still no prospect of refloating to positive values ​​- despite the rebound from March to May, which brought it to almost -0.081% – due to the maintenance of low rates by the European Central Bank (ECB).

This translates into a possible lower interest rate on variable mortgages due to the decrease in the part corresponding to this index, and causes the return of the question about whether the total negative interest on mortgages can become possible, and therefore some mortgage loans may see a part of the amount they agreed to pay to the bank decreased for the transfer of money.

What is the Euribor for?

The Euribor is a benchmark index published daily that indicates the average interest rate at which a large number of European banks say they make loans in the short term between them, and then dedicate it to the granting of mortgages and loans to third parties.

Its value serves to set the total amount of interest on a variable mortgage; This is made up of two parts, a variable, as its name indicates, and a fixed one, which serves as a reference or dam to prevent the total interest from being one day 0% or even negative.

In this way, if a mortgage has, like Gabriel’s, a 3% fixed interest + Euribor, it means that the floor of this mortgage will always be 3%. Not to be confused with floor clauses, where what was limited was the possible drop in the variable setting it a minimum value even if the Euribor was below it.

How does it affect the mortgage?

Thus, if the Euribor were at 4%, as in some moments prior to the financial crisis of 2008 it has been, the total interest on the mortgage would be 7% (3% fixed + 4% variable). What happens is that since the aforementioned crisis, banks stopped lending money as a result of mistrust between them, and the value of the Euribor was falling in parallel with the decrease in activity financial

The maintenance of low rates by the ECB contributes to the lack of loans between banks and therefore to the maintenance of the Euribor in negative values, but Does this translate into interest on mortgages?

The answer is yes for the moment, since the variable part of the interest is negative, it affects the fixed interest discounting it, and where some mortgages have a floor of 3%, this is what happens to Gabriel, this -0.415% leaves at 2.585% monthly interest, although the Euribor review is carried out annually and the discount can vary or even be reversed.

Is negative total interest possible?

Another thing is a negative total interest, like the one suggested by Gabriel, which would suppose that the variable part exceeds the fixed part; that is to say, that it fell to values ​​of -3%, which is the ground that is marked in fixed interest on our reader’s mortgage.

For the moment seeing negative total interest is highly unlikely, since the fixed minimum that we can see is 0.5% in the case of particularly favorable mortgages, granted mostly to employees of the financial institutions themselves.

Thus, if the fall in the Euribor is pronounced and exceeds -0.5%, it could be the case of a negative total interest. How would the bank behave? The situation is clear regarding mortgages granted from the new mortgage law of June 2019, in which it is established that the remunerative interest of the mortgages can never have negative values.

However, in older mortgages It is not ruled out that a situation like this could be seen if the fall continued to unusual extremes, which does not necessarily have to occur. Anyway, as highlighted by the Organization of Consumers and Users (OCU), the answer of the banks would hardly be to lower the amounts of the mortgages, for which the users should sue.

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