It’s time to talk to your bank about your mortgage (and more) and explore your options
With inflation in the eurozone accelerating to 3.3% in August and the European Central Bank considering an interest rate hike at its meeting this week, it’s probably time to talk to your bank about your mortgage (and more) and explore your options. Not only because you need to find ways to save money due to rising costs, but also so you aren’t caught off guard by a potential domino effect of interest rate hikes.
If we’ve learned anything from the post-COVID era—that is, from July 2022 through September 2023, during which the ECB implemented 10 consecutive rate hikes—it’s that the ECB won’t hesitate to do it again. In fact, if they learned anything in Frankfurt (and some are taking it hard), it’s that they were too slow to raise rates back then. This gives us every reason to believe that this time they won’t delay. They already raised interest rates by 0.25% in June, and although the markets do not expect a further increase at the September 10 meeting, nevertheless, no one can rule anything out. Especially with inflation climbing to 3.3% in August and public statements by Council members in favor of a rate hike to curb it.
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For this very reason, households and businesses should discuss with their bank how they will repay their expensive loans and manage overdraft limits (overdrafts), as well as how to “lock in” fixed interest rates on their mortgages. Don’t expect the banks to do this on their own, nor that the government will step in by offering interest rate subsidies. Experience shows that, even if such measures are introduced, they always arrive much too late and, at best, merely mitigate the financial damage to our pockets or serve as a delayed pain reliever.
These new developments affect not only existing borrowers but also those planning to take out a loan. For them, the rule is: be wary of consumer and high-cost loans, and calculate more carefully what your budget can actually handle. If, for example, you could afford a monthly payment of 600 euros at the beginning of the year, you’ll need to do the math all over again given today’s prices. You need to make a conservative forecast for the coming years, based on the assumption that prices will continue to rise—even if not at the 5.2% rate shown by the EU Statistical Office’s data for August. All of this is so that we know where we’re headed and aren’t caught off guard—again…
