A loan payment does not increase immediately when the European Central Bank (ECB) raises interest rates, though those with variable-rate loans will be affected, according to information from the Hellenic Bank Association, following the ECB’s rate hike on Thursday afternoon by 25 basis points (0.25%).
It states that the ECB is tightening its monetary policy to curb inflation and ensure price stability in the Eurozone.
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As for whether loan payments will increase immediately following the ECB’s rate hike, this will not happen right away.
Specifically, according to information from the Hellenic Bank Association, the adjustment takes effect on the next interest rate review date for the loan (e.g., in the case of ECB interest rates, on the loan installment falling within the effective date period or every 3, 6, or 12 months, depending on the reference index, such as Euribor or banks’ base rates).
The answer to which loans are affected and to what extent by the interest rate hike can be found in the borrowers’ loan agreements, specifically in the three main categories of variable-rate loans, which are A. Euribor, B. the ECB interest rate, and C. the bank’s base rate.
Regarding how much an installment may increase, it is noted that this depends on the outstanding balance and the remaining years. For example, a 0.25% increase in the interest rate on a €100,000 loan with a remaining term of 15–20 years increases the monthly payment by approximately €12 to €15. In the case of rate cuts, the calculations are applied inversely to reduce the monthly payments.
As for who will be most affected, information from the Hellenic Bank Association indicates that those with variable-rate loans will be impacted, while noting that the type of interest rate (Euribor, the ECB rate, or the bank’s base rate) plays its own—significant—role in determining when and by how much a loan installment increases or decreases.
As for whether someone with a fixed-rate loan is affected, the information states that they are not, explaining that as long as the fixed-rate period lasts, the monthly payment remains unaffected.
It notes that, as reported by the Central Bank of Cyprus, in recent years many borrowers have opted for fixed-rate loans for specific periods, such as 3, 5, or 7 years. It adds that, in addition to new loans, banks offered fixed-rate solutions for a certain number of years to customers during the previous cycle of interest rate hikes (2022–2023).
Regarding the amount, there may be further increases; but information from the Hellenic Bank Association indicates that the ECB’s decisions are based on current economic data and inflation trends. Consequently, no definitive conclusion can be drawn as to whether another increase will follow or whether the tightening of monetary policy will pause.
Regarding what a borrower facing financial difficulties should do, the report states that they should contact their bank immediately before falling behind on payments, in order to explore renegotiation options (e.g., extending the term, converting to a fixed interest rate for a specific period, etc.).
Example of an increase in a monthly loan payment based on current conditions:
Example of a Loan Payment Increase
Loan balance: €100,000
Initial monthly payment: €750
Initial interest rate: 3.50%
New interest rate (+0.25%): 3.75%
New monthly payment: Approximately €763
Monthly increase: Around €13 per month, depending on the remaining repayment term (e.g., ~15 years)
Source: CNA
