Thousands of concerned borrowers from banks both in Cyprus and other EU countries raise the question: How much can the instalment of a home mortgage or business loan be increased?
Considering that the European Central Bank’s Governing Council are to meet on February 2 with a new interest rate set to rise – the fifth in a row in seven months – th question is valid, Philenews reports.
A number of economists predict that the ECB will take the deposit rate to 2.50% next month as it continues its battle against rampant inflation.
And that the governing council are likely to follow that up with another 50 basis point lift in March.
Every time the ECB’s Governing Council meets, it means unbearable costs for thousands of borrowers who have floating rate or Euribor loans, which is what most banks have given out, Philenews also reports.
For example, for a €200,000 mortgage with a repayment period of 20 years, in June the average interest rate was 3% and the instalment was calculated at €1,109.
With the interest rate increases that have been made the average interest rate is close to 5% and this means that the instalment increases to €1,300 in a few months.
This is a major reason why demand for mortgages has fallen as borrowers assess that interest costs are a deterrent.
If the interest rate rises to 5.5%, then the instalment goes to €1,377 – an additional €270 per month from June.
Essentially, the ECB’s interest rate policy means that borrowers are paying around two and a half more instalments per year and for this reason vulnerable households are expected to be particularly affected.
If interest rate rises continue until the summer, as ECB officials say, the burden will go well beyond two and a half instalments per year.