The IRS mortgage or exchange of interest rates at 5 years

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This Monday comes into force a new benchmark of the mortgage market , applicable to variable rate mortgages. This new reference is the Good Lender or exchange of interest rates at 5 years . It does not replace the Financial Standing, but complements it. From now on banks and savings banks will be able to offer variable rate mortgages referenced to these indicators:

  1. Average type of mortgage loans for more than three years, for the acquisition of free housing, granted by credit institutions in Spain.
  2. Average type of mortgage loans between one and five years, for the acquisition of free housing, granted by credit institutions in the euro zone.
  3. Type of internal yield in the secondary market of the public debt of term between two and six years.
  4. One-year Financial Standing.
  5. Exchange of interest rate or Insurance Company to five years.
  6. The Good Finance is still valid for mortgages contracted before January 2000.

To persuade customers

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The ABC sector, banks and savings banks disappear, leaving only the ABC set of entities. For clients who have these ABCs that disappear, it is important that they review the clause of their mortgage loan deed where it indicates what type of substitute interest will be applied, which is often the Financial Standing. Do not be fooled by directors without the necessary ethics, which, according to ABC, tries to persuade customers to switch to the ABC of entities (worse than the Financial Standing).

Bank wants to sell us

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Most Spaniards have referenced our mortgage to Financial Standing . In this case, nothing changes for us. We will continue with the same conditions that we signed at the time in the mortgage loan deed. Of course, we might be tempted to subrogate ourselves to a new ABC mortgage. If the bank that recommends the change of reference rate is the bank (for example invites us to a novation of conditions), there is suspicion. Unfortunately, what the bank wants to sell us is usually not what suits us best.

We cannot compare the Financial Standing and the ABC based on the differentials; A Financial Standing + 1 may be better than an ABC + 0.50 depending on how both indices evolve. You have to properly analyze historical graphs and have enough knowledge to make projections.

Expansión has done an excellent job in the news Goodbye Financial Standing, the ABC arrives, in which it compares us in a graph the evolution of both referentials (and it is perfectly appreciated that the ABC is not more stable than the Financial Standing). They have also collected some statements from me, which is a real pleasure:

Being a five-year index, it is logical that they review it every five years, but they probably do it annually. ABC, by definition, is an index that is calculated based on the average type of mortgage loans over three years and, however, banks and savings banks review them every year, ”explains Sean Cole, economist of the product comparator.

Mortgage loan

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As in the life of a mortgage loan, in the very long term, there will be periods of ups and downs of rates, the general advice of experts is, regardless of referring to the Financial Standing or the ABC, not to borrow above the possibilities . “ The simplest recommendation is to look at the maximum interest rate at which the index has quoted, add the differential and see if we can pay the resulting fee. If we can pay it, we get into the mortgage and if not, it is better not to hire it, ”explains the expert.

They are not going to stop offering mortgages to Financial Standing, although the logical thing would be to think that the bank will offer the new mortgages to ABC more intensely:

”It will depend on the demand, but it is possible that during a transition period the entities offer both offers. Maybe with a greater differential for the Financial Standing and thus attract customers to the ABC, ”says Fernandez.

The newspaper 20 Minutos also mentioned us in its print and online edition. Among other comments:

The Financial Standing indicates the price at which the money is lent daily by the entities in the European interbank market. However, as this market ” is currently broken, because the entities do not lend to each other since none trust the others, this indicator no longer fulfills its function of pointing out the real cost of credit, ” says Sean Cole, economist.

The ABC , meanwhile, is published daily in an economic news agency and is calculated as ” an average of the futures market – a type of financial derivative – on the evolution of five-year interest rates “, Fernandez points out, for whom it remains to be resolved whether the revision of this index will be annual or five-year, and it is not so clear that this change will be of any benefit to consumers. The banks did not get the accounts and the ABC have been invented. They want an interest rate the more expensive the better, he emphasizes.

As for the supposed “price stability” granted by the ABC, Fernandez sticks to the data: “ Seeing the historical graph, it has almost always been significantly more expensive than the Financial Standing, and to top it all its evolution is not more stable, it fluctuates same, he says. How to avoid losing? The experts are clear: stop “advise” by the director of our office and find an external mortgage expert.

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