August squall in loans

Family budgets are turned upside-down, particularly for households who are paying a mortgage or car loan. The ECB increase of interest rates is the “icing” on the cake, after the bleedout from government taxes.

And it is not the current 0,25% hike that scares the most, but those that will follow since predictions are ominous: the reference rate is expected to reach 2%.

Floating rate loans will display the increase automatically next month, with consumers realizing it in the August statements. The banks will meet soon to decide on other categories, as the cost has gone up, boosted by the continued rise in interest rates on term deposits (up to 6-7%).

However, banks raise money for their liquidity from such deposits. Until now they could not raise the interest rates so they waited for the official decision of the ECB. Now they have the excuse to increase interest rates, justified by the rise of the ECB reference rate.

Examples:

Mortgage loans with high installments will be the ones mostly affected. For example, a loan of 200.000 euros at a floating rate of 2.85% has a monthly installment of 1106,19 euros for 240 months. The interest rate increase by 0,25% takes it up to 1140,47 euros, which translates into an annual surcharge of 411 euros.

Obviously, family budgets will be turned upside down, especially where income is not steady.

For example, the charge may seem small on a loan of 100.000 euros and a repayment period of 20 years. At a rate of 4% the monthly installment comes to 615 euros. The increase appears to be small, as the installment will rise from 615 euros to 640 euros. Annually, however, this translates into 300 euros.

Accordingly, for a 150.000-euro loan and a 30-year repayment period, the installment is increased from 723 to 767 euros, if the rate rises by 4% to 4,5%, and to 813 euros if the rate is increased by 5%.