Navigating the Challenges of Variable Rate Mortgages: How Borrowers Can Stay on Top of their Finances and Manage Debt Effectively

Mounting payments with variable rate mortgages

In January 2022, 26% of active mortgage loans were at a variable rate. The rate hike by the ECB had a significant impact on the average installment of these loans. According to an analysis conducted by CRIF, the average installment for variable rate mortgages increased by +36% compared to the lows of mid-2021, with a peak of +49% for mortgages disbursed in the last 5 years. Despite borrowers making 24 installments between January 2022 and December 2023, the overall level of debt for those with variable rate mortgages in the last 5 years increased by +25%.

Despite the increase in interest rates, there has not been a significant increase in the insolvency rate for those with adjustable rate mortgages. However, an analysis of financial tension index by CRIF shows that borrowers are experiencing worsening financial situations, with a shift towards higher levels of financial stress. Simone Capecchi, Executive Director of CRIF notes that while relief may come with a possible rate cut in June 2024, borrowers must remain vigilant and adapt to changes in the financial landscape to ensure stability and effectively manage financial stress.

In this current macroeconomic and geopolitical context of uncertainty, it is crucial for borrowers to be proactive in managing their finances. Staying informed about changes in interest rates and keeping track of their debts will help them navigate potential challenges and maintain long-term stability.

Borrowers should also consider seeking professional advice from financial experts or credit counselors if they are struggling to manage their debt or facing potential insolvency issues. These professionals can provide guidance on how to create a budget plan, negotiate with creditors or lenders, and explore alternative options such as debt consolidation or refinancing.

In conclusion, despite the rise in interest rates and potential financial challenges ahead, there are ways for borrowers with adjustable rate mortgages to manage their debt effectively and maintain long-term stability. By staying informed, seeking professional advice when necessary and adapting to changes in the financial landscape, borrowers can navigate potential challenges successfully.

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