Mortgage refinancing boom: should you switch to a fixed rate or a capped rate? Here's when.

Among those who have taken out variable-rate loans, the desire to refinance them is now growing. Last month, refinancing represented over 34% of all mortgage applications, triple the figure recorded last year. The increase in installments, combined with the general rise in the prices of consumer goods, is weighing down the household budgets of many families.

Those who feel they are having difficulty meeting their obligations are seeking to replace their existing mortgage with a new fixed-rate or variable-rate mortgage with a cap. The interest rate fluctuates based on the Euribor rate, which, however, cannot exceed a certain threshold (CAP), thus establishing a maximum amount for the installments to be paid. The impact of mortgage replacements will continue to grow, given that a further increase in the Euribor rate is expected in the near term: the alignment of market rates is not timely but inevitable. Mortgage replacement is permitted by the Civil Code, allowing the transfer of an existing loan from one bank to another at no cost . It is therefore possible to change the periodic installment amount, the interest rate, and the terms of the loan, but not the remaining balance of the loan. For the borrower, the higher the principal to be repaid to the bank, the longer the remaining term of the mortgage, and obviously the higher the interest rate applied by the bank, the greater the advantage of replacing the old loan with a more advantageous one. For example, with a high residual debt, or at least more than €150,000, and a long mortgage term, no less than half the repayment period, a mortgage replacement remains advantageous. Conversely, for a variable-rate mortgage where most of the interest has already been paid, calculating the mortgage installment might indicate that it is not advantageous to transfer the mortgage, but rather it is better to keep it with the original bank and perhaps request a renegotiation of the contractual terms. Furthermore, observing the prices of three-month Euribor futures traded in London, market participants expect the rate to continue to decline. It's therefore logical to expect that this further expected decline will convince those with variable-rate mortgages to consider switching to a fixed-rate mortgage. Moreover, the IRS (Interest Rate Swap) index, which serves as a benchmark for interest rates applied to fixed-rate mortgages, is also declining. The most commonly used benchmark is the 20-year IRS, currently at around 2.82%. Those (a few) choosing variable-rate or variable-rate with a cap are betting on a moderate rise in Euribor rates over the next few years, fearing overheating prices following Trump's inflationary policies. They prefer to take advantage of a slightly lower rate than a comparable fixed-rate mortgage, while still leaving the door open to a future switch to a new fixed-rate mortgage. The increase in variable-rate mortgages with CAPs is also due to the expansion of the offerings by numerous banks, which have reintroduced this type of mortgage with the aim of offering lower installments but with the certainty that, as interest rates rise, these installments cannot exceed contractually pre-established levels.