Medium term is virtue. Or what, applied to the current buoyant mortgage supply, mixed mortgages could be the best option to hedge against interest rate hikes. As a rule, part of the loan has a fixed interest rate for the first ten years and part has a variable interest rate until the loan is repaid. The mixed mortgage would make it possible to find an attractively priced breakpoint in a full-on interest rate hike.
Banks update the terms of their mortgage loans almost every week, and with this constant review, fixed-rate mortgage rates are beginning to outperform fixed-rate mortgage interest rates. This product was completely cornered in the banking showcase, but Euribor’s unstoppable pull has propelled it to the top of the model book of an ever-growing group of financial institutions.
The big wish of those who are taking out a mortgage now is to sign a fixed-rate mortgage, with which they protect themselves against the coming rate hikes, which will continue to boost Euribor, albeit with less intensity than previously seen. However, there are hardly any offers with a fixed interest rate of less than 3%.
BBVA, Evo Banco and Ibercaja are still fighting back with a price just below the 3% APR threshold. But with mixed mortgages, lower interest rates are common, even less than 2% nominal for the first ten years of the loan’s life. A crucial difference, because the interest burden that the customer pays on the amount borrowed from the bank is higher, especially in the first few years.
In the variable part there are spreads of Euribor plus 0.55%
Simone Colombelli, director of mortgages at comparison and mortgage advisor iAhorro, confirms that “the mixed mortgage interest rate is between 0.3 and 0.6 percentage points below the face value of a fixed-rate mortgage and with this data it is clear what is much better for the users to sign a mixed”.
At Openbank, one of the companies where the blended mortgage shares a window with the fixed and the variable, the interest rate of the fixed part of the blended loan is 2.37% nominal, for a term of 10 years, while in its offer a fixed Interest rate offered will increase slightly to 2.69%. The variable portion of the blended mortgage is Euribor plus 0.55%, while the interest for the 100% variable mortgage is Euribor plus 0.7%.
The most reliable comparison is the one measured in APR, including all borrowing costs. And in this case, and for a €150,000 mortgage over 25 years, the APR of Openbank’s adjustable mortgage is 3.56%; 3.32% solid and 3.21% mixed, according to the company’s website. The prices are the subsidized prices resulting from the acceptance of conditions such as payroll, home and life insurance and the gas and electricity supply contract with Repsol.
At ING, they acknowledge that they bet on mixed mortgages, which account for 60% of their new production, compared to 25% of variable and 15% of fixed. “Mixed mortgages are now the best option, they’re a winning horse,” says Alberto Gómez Agustino, Mortgage Director at ING. The company offers a fixed nominal interest rate of 3.45% for the first ten years and a variable interest rate of Euribor plus 0.79% thereafter. And at up to 40 years, it offers the longest term of all mixed mortgages.
Evo Banco and Ibercaja, fiercely priced in fixed-rate mortgages, also join the offering of mixed mortgages with one of the lowest interest rates on the market. Evo Banco sets a fixed nominal interest rate of 1.85% for the first five years and thereafter a variable interest rate of Euribor plus 0.75%. A direct debit from payroll and purchase of life and home insurance are required. Without this link, the bonuses disappear and the nominal fixed rate increases to 2.15% and the floating rate increases to Euribor plus 1.15%.
60% of ING’s new mortgage production is offered at a blended interest rate
In Ibercaja, the mixed mortgage has a fixed rate of 1.85% for the first ten years and a variable rate of Euribor plus 1% for the remaining years. They are subsidized types, which are obtained by taking out home and life insurance and by systematically paying 75 euros a month into an investment fund owned by the company.
As explained by Víctor Royo, Head of Commercial Strategy at Ibercaja, the mixed mortgage “can guarantee a very attractive fixed rate for 5 or 10 years and later switch to a variable rate, with the expectation of greater interest rate stability and a normal positive evolution of wages”. The most sought-after option is the 10-year fixed-rate option, he adds. In this way, the customer succeeds in guaranteeing a fluctuation-free interest rate in the years in which the interest burden on the loan weighs the most. Ibercaja and Evo also offer a fixed portion for only five years in their mixed loans, almost comparable to a variable mortgage.
“If after a while the customer isn’t happy with the interest rate on their mixed mortgage, there’s always the option of subrogation,” they point out to iAhorro. From this mortgage advisor, they also point out that while the fixed rate portion can be particularly attractive now, the overall cost of the loan may well become more expensive if the rate becomes variable.
Mixed mortgages have not yet penetrated the banking system as a whole, which reduces price competition. CaixaBank, leader in the mortgage market, does not offer them and maintains its commitment to the fixed rate. Santander has included the mixed ones in its offer, but at higher rates: nominal fixed rate of 4.3% in the first years and Euribor plus 0.8% from the tenth year.
The Euribor points to 3% at the end of the year
Meteoric rise. The ECB’s rate hike has resulted in a meteoric rise in 12-month Euribor, which is referenced by the vast majority of adjustable rate mortgages, and is causing an unprecedented rise in monthly payments year-over-year. The monthly average of the Euribor was already just under 2.8% in November, compared with -0.487% in the same month of the previous year.
Forecast. Expert estimates assume that the Euribor will reach 3% by the end of the year. Its rise will lose intensity compared to what has been observed so far, but the rate hike that the ECB is expected to decide in December, which could be another half point, has yet to be taken into account. The prospect is for further gains in 2023, already up a quarter point, and a longer-lasting environment of high interest rates, keeping the rate cuts on short-term mortgage payments at a distance.