Increase in interest rates: How to reduce the installment of my housing loan?

Are you having trouble paying your mortgage? Contact the credit intermediaries at Poupança no Minuto to understand what solutions are available. Or read next about the new interest rate hike and the options you have to lower your installment.

BCE increases interest rates again (and possibly for the last time)  

The European Central Bank (ECB) has once again raised interest rates in the Eurozone at the Monetary Policy Committee, for the tenth consecutive time since July 2022. 

Now, the deposit facility rate increases to 4%, the highest historically. As for the other key rates, the increase is also reflected in 25 basis points: the interest rate of the main refinancing operations to 4.5%, and the interest rate applicable to the permanent liquidity-providing facility to 4.75%. Interest rate

However, the ECB also announces the possible end of the rate-hike cycle, stating that "policy interest rates have reached levels that – if maintained over a sufficiently long period – will contribute substantially to achieving the inflation aim in a timely manner." 

After this decision by the ECB, also Euribor rates consequently rose, in all maturities. The three-month Euribor and the six-month Euribor reached new highs.

The Euribor rate for the 12-month period has now risen to 4.169%, not surpassing the peak of 4.193% from November 2008. However, according to data released by Lusa, the rate for six months has increased to 4.055% and the rate for three months to 3.878%, reaching historic highs since November 2008. These increases will have a direct impact on the housing loan installments of the Portuguese once again. This has created a lot of financial difficulties in the budgets of families with mortgage loans. The Government announced that it is focused on creating a mechanism that protects families with a significant burden of these interest rate fluctuations, in order to "stabilize installments," as Finance Minister Fernando Medina stated.

However, it may be possible to lower the home loan installment by using options such as renegotiation or credit transfer, or credit consolidation.  

The credit intermediaries from Poupança no Minuto can help you with one of these processes, free of charge, to help you rebalance your budget. Let's see how these products work.

How to download the installment of my housing credit?  

Renegotiate the credit conditions  

The first step to take when you want (and need) to lower your home loan installment is to go to your current bank to express your dissatisfaction and inability to pay the financing under current conditions.

The bank may review the conditions and suggest new options to you as a way of renegotiating the contract and allowing for some relief in the monthly installment.

For example, the bank may propose lowering the spread of the loan if you hire other associated products such as a credit card, or propose extending the loan term (if it is not already the maximum), with the possibility of resuming the previous one.

But note that the bank is also obliged, currently, to renegotiate certain housing credit contracts. This is an exceptional measure by the Government, applied to credit contracts for the acquisition of permanent own housing with a variable rate and a debt value up to 300,000 euros, when the effort rate is equal or higher: 

• Fifty percent;
• A 36% consequence of a increase of over 3% in the associated interest rate;
• A 36% consequent from a 5% increase in effort rate in the last year.  

Advance with a credit transfer  

This is an option that has been quite sought after by customers, as it allows access to different (and often better) conditions. If the bank where you have your home loan cannot offer you more favorable or compensatory conditions, request proposals from other banks.

According to your context and preferences, you may be able to get a more appealing proposal for your credit from another institution.

From the different proposals, you should analyze and compare them to understand if it is worth it compared to what you currently have.

Through housing credit transfer, you can access:

• Reduction of the spread and Nominal Annual Rate (NAR);  
• Extension of the contract deadline; 
• Change of interest rate type (for example, from a variable rate affected by Euribor increases to a fixed rate without index);
• Transfer or reduction of required insurance installments;  
• A possible increase in the market value of the house, with a new appraisal.  

When moving forward with a proposal from another bank to transfer the credit, be aware that you have to inform the current bank with 10 days in advance that you will do it. Also, keep in mind that the bank also has 10 days to share the data and documents related to the credit with the bank to which the financing will be transferred.

Got more credits? Consolidate them 

If, in addition to the home loan, you have other contracted credits such as consumer loans or credit cards, you can consolidate all into one. For example, having a mortgage, a car loan, and a credit card, you can contract a consolidated credit that combines all three.  

In this way, you start paying a single installment for various credits, which can be of a lower value, since interest rates are more attractive, and the loan term can be significantly extended. But by stretching the term, you end up paying more interest on the credits later on.

So, it is a product that allows for greater savings in the short term, but that may represent a greater burden in the long term.  

Therefore, if you need to lower your mortgage payment immediately, these are some of the options available to you.  

Want to move forward with something or learn more? Contact Poupança no Minuto for a free and personalized credit intermediation service, and ensure some breathing room in the family's monthly budget.