What is happening with mortgage payments?

Mortgage payments will once again ease the financial burden on Portuguese families in July, with reductions of up to €135, depending on the index used in the home loan agreement. This new relief comes as the European Central Bank (ECB) prepares to pause its cycle of interest rate cuts, after a series of reductions that pushed rates to their lowest level in more than two and a half years.

The impact of the ECB’s decisions

In recent months, the ECB has been lowering its key interest rates, reflecting the easing of inflationary pressures in the Eurozone. Since summer 2024, there have been eight cuts, with the deposit facility rate now standing at 2%. These reductions have had a direct impact on Euribor rates, which are used as a reference to calculate mortgage payments on variable rate contracts. As a result, those with mortgage reviews scheduled for July will benefit from another drop in their monthly payments.

What will happen to mortgage payments in July?

For a typical €150,000 loan over 30 years with a 1% spread, monthly payments will drop significantly:

Three-month Euribor

The payment will fall to around €636, a reduction of €32 compared to the previous quarter.

Six-month Euribor

The payment will also be around €636, a drop of €56 compared to the previous half-year.

Twelve-month Euribor

The payment will fall to €639, €134 less than the amount paid a year ago.

These figures reflect the average Euribor rates recorded in May, as banks use this data to update repayments in the following month.

The end of the downward cycle in mortgage payments

Despite these reductions, there is already a noticeable slowdown in the pace of Euribor declines, signalling that the period of mortgage relief may be coming to an end. In fact, the twelve-month Euribor average rose slightly in June, the first increase in over a year, suggesting that upcoming revisions may not be as favourable.

The ECB is expected to pause interest rate cuts as early as July, following a period of volatility in international markets, driven by oil price instability and geopolitical tensions. Markets are anticipating just one more rate cut by the end of 2025, meaning that the current cycle of reductions is almost over. As such, housing loan costs will remain lower, but further decreases are unlikely to match the pace seen over the past year and a half.

What should mortgage holders do?

For Portuguese families, this scenario presents an opportunity to strengthen their financial buffer, using lower payments to save or make early repayments. However, it is crucial to keep an eye on interest rate trends and ECB decisions, as any change may directly affect future mortgage costs.

July brings another round of relief in mortgage payments, but the period of sharp declines is nearing its end. As the ECB’s monetary policy enters a more cautious phase, the future of mortgage costs will depend on the Eurozone’s economic outlook and the decisions of European monetary policymakers. For those with home loans, it is essential to monitor these developments closely and, whenever possible, simulate the impact of future revisions on the household budget.

Source: SUPERCASA
General, Taxes and Fees, Real Estate Market, Portugal