The mortgage market in Italy is experiencing a moment of cautious optimism, thanks to a gradual downward trend inInterbank rate offered in euros (Euribor), the benchmark index for variable rate loans. According to data published by the Italian Banking Association (ABI) in April 2024, the 3-month Euribor (the rate calculated on the 3-month maturity) was on average 3.89%, down 11 points compared to the maximum recorded in October 2023.
This prospect could represent a breath of fresh air for many Italians who, over the last decade, have chosen an adjustable rate mortgage to buy their home.
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What is Euribor and how does it impact indexed mortgages?
Euribor is a reference coefficient used in the European interbank market and represents the average interest rate at which the main European banks grant each other short-term loans, in euros. It can increase in two scenarios: in the event of a crisis of confidence among banks, which demand higher yields to lend money, or when the ECB decides to increase the deposit rate to fight inflation, influencing thus the costs of variable rate mortgage loans. .
Variable rate mortgages are a form of financing in which the interest charged adjusts periodically according to changes in the Euribor. This means that the amount of the monthly payment can vary depending on market fluctuations: when the index increases, the monthly payment increases, while when it decreases, the charge decreases.
To calculate the deposit add the Euribor to a propagated, that is to say an additional margin determined by the bank, which constitutes its profit. For example, if the index is 3.5% and it propagated of the bank is 1.2%, the total amount to be paid will be 4.7%.
How does an adjustable rate mortgage work and when is it practical?
THE indexed rate financing They present both benefits and risks. Benefits include a lower down payment and the ability to save when interest rates fall.
However, if interest rates rise, this option can put a strain on the family budget; there is a risk of losing the mortgaged property if the monthly payments increase significantly and the borrower is not able to meet his payments. Additionally, uncertainty about future payment amounts makes long-term financial planning more difficult.
In general, the choice can prove advantageous for those who have a certain economic strength, allowing them to absorb possible increases in the amount to be paid monthly. Before choosing this type of mortgage loan, you should carefully evaluate your financial situation, possibly consulting a financial expert.
The long-awaited drop in Euribor over the two-year period 2025-26
The macroeconomic projections for the two-year period 2025-26, developed by Bank of Italy experts, are particularly encouraging for borrowers who have chosen a variable rate mortgage loan. According to forecasts, Euribor, after increasing to 3.5% in 2024, is expected to fall significantly to reach 2.5% in 2025 and another 2.3% in 2026.
On January 19, during the meeting of the Governing Council of the European Central Bank (ECB), also President Christine Lagarde projected for 2024 a improvement of economic conditionswith a recovery in consumption it's a slowdown in inflation. However, he warned that the The ECB will gradually reduce interest ratesby maintaining a restrictive monetary policy.
