Euribor prices have risen for three months in all maturities. But the scenario is expected to worsen in the coming months. This is because the European Central Bank (ECB) is expected to start interest rate hike As a measure to combat the current rise in inflation in the euro area. So how can the rise of Euribor affect your effort rating?
Euribor prices are on the rise, what now?
If you have a home loan tied to the Euribor rate, the effect you will feel will be on the monthly installment you pay for it. Which means that your current effort rate, which the bank has calculated to approve your balance, will also increase. As a rule, banks accept a mortgage for those who do not have an effort rate of more than 30% – the maximum so that the family budget is not too tight.
However, it all depends on whether you have other loans, other installments or credit cards. But let’s move on to explaining what it is Voltage rate And what it represents on your home loan, so that you understand whether it is worrisome to go up or not.
How is my efforts rate high with Euribor?
What is the voltage rating after all? It is the ratio between your household’s monthly net income and your expenses. That is, the income they receive must be sufficient to cover the expenses so that the family budget is not tight.
For example, assuming you have a net income of €1,500 and you make a loan payment of €400, you can calculate your effort rate as:
Voltage rating = (400/1500) x 100 = 26.7%
So, in this case, the effort rate is equal to 26.7%, which is less than the maximum of 30% authorized by the Bank of Portugal for mortgage loans.
But let’s look at another example: if you receive 2,000 euros net, you have 600 euros of the mortgage loan installment, your effort rate increases to 30%. If, in addition to this loan, you have other fees, such as repaying a car loan of 100 euros and monthly credit card debts of 80 euros, then the effort rate will be equivalent to 39%.
However, if your credit premium goes up, your effort rate will also increase.
In this sense, if your allowance increases by 50 euros, and your income does not grow, it may be advisable to make adjustments to your family budget.
While it’s not a huge increase at the moment, you should be careful not to offer new credits or overburden yourself with new fees. But instead, focus on cutting non-essential services, to increase financial slack in the family budget.
But if, in the long run, the Euribor prices continue to rise To the point that it can affect your performance as a €200 increase, your effort rating is already as high as 49%. Here, you should take measures that involve cost reduction so as not to jeopardize the budget and to be able to cover all the essential expenses.
In this case, small cuts may not be enough to achieve the cash you need. You may have to consider solutions such as reviewing other terms of your credit, transferring your balance to another bank, or doing credit consolidation to reduce your effort rate.
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