If variable rates were to drop by 150 basis points in 2024, one would need a fixed rate higher than 3.91% for switching to the variable rate to be beneficial.
Papucci suggests, “An alternative for those struggling with loan payments could be requesting a suspension, up to 18 months, from the Gasparrini Solidarity Fund.”
Is it advantageous to switch to a variable rate now? “Only if you have a particularly high fixed rate and a good risk appetite,” explains Nicoletta Papucci. After calculating potential savings in a year by choosing a fixed rate now, she considers two scenarios: an extreme one with six cuts of 0.25 basis points in 2024, and a less extreme one with four cuts in the same timeframe.
“If, in 2024, variable rates were to drop by 150 basis points, today I would need a fixed rate higher than 3.91% to make switching to the variable rate worthwhile,” says Papucci. “I would pay 842 euros per month, equivalent to 10,104 euros per year, as in the case of the analyzed variable-rate mortgage.” If, however, in 2024 variable rates dropped by 100 basis points, she continues, today one would need a fixed rate higher than 4.18% to benefit from switching to the variable rate.
Considering that the average maximum rates requested in December were 4.14%, it should involve a relatively limited number of borrowers. In this case, the installment would amount to 862 euros per month (or 10,344 euros in a year). Papucci notes that most repricings by banks in the last month have been on fixed rates, often downward (up to 85 basis points in special offers) but, in some cases, upward (up to 25 basis points). There haven’t been significant pricing changes on variable rates, chosen by less than 6% of applicants today.
Alternatives to Lower Mortgage Payments
What are the alternatives to lower mortgage payments? And what is advisable today? One entirely free option is subrogation, i.e., turning to another credit institution. “Subrogating is always possible and is a free right of the borrower. However, subrogating from fixed to variable makes little sense in the short term, and subrogating from variable to fixed is recommended, especially for those who think they can’t afford such high installments in the coming year; otherwise, it might be better to wait and subrogate to a lower installment,” explains the expert.
Another option is renegotiation, a modification of the agreement with the reference bank to revise certain conditions. In the first nine months of the year, according to an ABI report, 17.4 billion euros of mortgages were renegotiated, over three times the 5.1 billion euros negotiated in the same period in 2022.
“An alternative for those struggling with loan payments could be requesting a suspension, up to 18 months, from the Gasparrini Solidarity Fund for mortgages for the purchase of the first home,” concludes Papucci. It’s important to note that the suspension can be granted for a mortgage up to 250,000 euros in the case of:
- Loss of employed work.
- A drop in turnover of more than 33% for self-employed workers.
- Severe disability or death of the borrower.
