In a significant development for homeowners in Spain, the Euribor, the primary reference rate for most Spanish mortgages, has reached its lowest point of the year in July 2024. This reduction is poised to lower annual mortgage payments by up to €840 ($920), offering substantial financial relief to borrowers.

The Euribor, calculated daily and averaged monthly by the Bank of Spain, is crucial in determining mortgage rates. Recently, it has dipped to annual lows, averaging around 3.57% in July, the lowest since February 2023. This marks a notable decrease from 4.149% recorded a year ago, indicating a significant drop in mortgage rates for those undergoing reviews this month.

According to Diario Sur, homeowners in Malaga could see their monthly mortgage payments decrease by up to €70 ($77), resulting in annual savings of more than €840 ($920). These figures are based on an average mortgage amount of €209,500 ($229,000) from a year ago, as the National Statistics Institute (INE) reported. The reductions will be smaller for older mortgages due to lower original amounts. For example, in July 2014, the average mortgage in Malaga was just over €103,000 ($112,600).

For those with semi-annual mortgage reviews, monthly costs could drop by over €4 ($4.50), totaling nearly €28 ($31) for the semester. Experts forecast that the Euribor will continue its downward trend in the coming months. Despite the European Central Bank (ECB) maintaining interest rates after a recent cut, further reductions are expected by year-end. Projections from Kelisto suggest that Euribor will close the year around 3.4%. HelpMyCash analysts anticipate a cautious ECB approach to prevent inflation spikes, predicting the Euribor could end the year between 3.25% and 3.50%.

The Funcas panel, involving around twenty analysis firms, expects the Euribor to finish 2024 at approximately 3.3% and dip to about 2.8% by the end of 2025. This suggests ongoing decreases in mortgage payments for the remainder of this year and into the next.

Homeowners have already experienced reductions in their mortgage payments this year. Those with reviews in March, April, May, and June saw lowered costs as Euribor reversed its upward trend that began in early 2022. Starting from a negative -0.477% in January 2022, the Euribor surged past 3% by year-end, driven by inflation from the Ukraine conflict and subsequent central bank responses. It even exceeded 4% in 2023 before starting to decline.

With forecasts indicating continued Euribor declines, what should borrowers consider when choosing between variable, mixed, or fixed-rate mortgages? According to experts from The Agency Marbella, the decision should focus on long-term planning rather than current economic conditions. Mortgages in Spain typically span around 25 years.

Leif Orthmann, Managing Partner at The Agency Marbella, advises, "Selecting the best mortgage depends largely on individual risk tolerance, the importance placed on financial security, expectations about the Euribor, and the ability to make early repayments."

Variable-rate mortgages suit those comfortable with risk and confident in future financial improvements, enabling them to handle potential payment increases. Orthmann notes, "If a client is willing to take risks, believing the Euribor will drop in the medium to long term, a variable-rate mortgage could be suitable, provided they have the financial capacity to manage occasional payment hikes."

A fixed-rate mortgage might be ideal for those planning to repay their debt early, sell the property within a few years, or need stability during the initial loan years.

Fixed-rate mortgages are preferable for those with strict monthly budgets or limited financial flexibility, offering the security of consistent payments. Orthmann highlights, "Fixed-rate mortgages are historically competitive, currently below 3%, making them attractive despite not being as low as a few years ago."

As the Euribor continues to impact mortgage payments, homeowners must carefully evaluate their options to secure the most favorable terms for their financial situations.