Swedbank: Home Loan Payment Can Remain the Same Even as Euribor Rises

The rise in Euribor means higher monthly payments for most home loan borrowers. However, it is less well known that Swedbank is the only provider on the market offering a payment schedule where changes in Euribor do not affect the monthly payment – instead, the loan period changes.

According to Anne Pärgma, head of Swedbank's home lending division, Estonian people mainly prefer either a standard annuity schedule or a schedule with equal principal payments. In both cases, changes in Euribor affect the monthly payment. The six-month Euribor has risen by approximately 0.6 percentage points since last summer.

"It is less well known that there is also a third option – a fixed annuity schedule, or a flexible maturity solution. With this option, the monthly payment remains the same, but the loan period is reviewed twice a year. If Euribor rises, the loan period extends, but the monthly payment does not change. As Euribor falls, the loan period shortens and a larger portion of the monthly payment goes towards repaying the principal," explained Pärgma.

For example, with a 100,000 euro home loan at a 1.5% margin with a monthly payment of 500 euros, the loan will be repaid in approximately 23 years and 8 months at a 1.5% Euribor. If Euribor rises to 2%, the loan period extends to approximately 25 years, and at 2.5% Euribor, to approximately 27 years.

"This solution is suitable for those who value a stable monthly payment and want better peace of mind when planning their household budget. When choosing the monthly payment amount, it is important to note that the maximum loan period is agreed upon in the loan agreement and can be up to 30 years, just like with a standard home loan," added Pärgma.

With a standard annuity schedule, the loan period is fixed, but changes in Euribor are reflected in the monthly payment. For example, with a 100,000 euro home loan with a 25-year term and a 1.5% margin, the monthly payment is approximately 474 euros at 1.5% Euribor, approximately 501 euros at 2%, and approximately 528 euros at 2.5% Euribor.

With a schedule of equal principal payments, Euribor also affects the monthly payment, but its impact decreases as the loan balance decreases. Interest is calculated monthly on the remaining loan amount, which is why Euribor's impact is greatest at the beginning of the loan, when the loan balance is highest. The smaller the loan balance, the smaller the impact of Euribor on the monthly payment.

As a fourth option, you can choose a home loan with a fixed interest rate for five years. This guarantees a fixed interest rate for five years, but does not necessarily mean lower interest costs. Depending on how Euribor moves in the future, this may turn out to be either more favorable or more expensive for the customer. After five years, the loan interest rate will again depend on the six-month Euribor and loan repayment will continue on a standard annuity schedule basis.

According to Pärgma, when choosing a payment schedule, it is worth considering whether what matters most is a stable monthly payment, lower total loan costs, or a fixed repayment period. "There is no one right solution – the most suitable choice depends on a person's needs and expectations."