The boiler, the air conditioning, your computer and even your health. Everything needs revisions! Your mortgage is no exception. If you have a variable rate mortgage, you will need a semi-annual or annual mortgage revision to adjust it to the Euribor or the reference index.
How do mortgage reviews work?
In variable rate mortgages, the interest you pay depends on a reference index. If you are lucky, it will be the famous Euribor, although there are other indexes that can be used.
The value of this Euribor changes every day and the mortgage payment could be adjusted so that each month it is different depending on what the index does. However, this would not be very efficient for you or the bank.
Imagine if the amount you had to pay for your mortgage changed every month. It would be impossible to plan! The solution to this problem was to create variable mortgages that updated their value from time to time. In other words, we are talking about two options: a half-yearly mortgage review or an annual review . See how easy it is?
These half-yearly mortgage reviews serve to adjust the Euribor value to that of the previous month and recalculate what you will have to pay each month until the next review.
How to calculate how much you will pay with the mortgage review
Finding out the new mortgage payment after a review involves making fairly complex calculations with the new interest rate, the term and the outstanding capital to be repaid.
What you need to know is that if the Euribor rises, you will pay a little more for the mortgage and if it falls, you will pay less. It's that easy!
Example of a semi-annual mortgage review
To help you understand this better, here's a very simple example. Imagine a 150,000 euro mortgage for 25 years at a rate of Euribor plus 1% that is revised every six months.
In the last review, the Euribor value was zero, so the final rate of the loan remained at 1%. After six months, the Euribor rises to 0.25%. What would the new instalment be? The sum of the Euribor and the differential, that is, 1.25%.
The translation is that in that case the mortgage will rise because the Euribor will also rise.
Semi-annual or annual mortgage review: Which is better?
Are you looking for a mortgage and are you wondering which review period is best? In the past, most mortgages were reviewed once a year, although it is now more common for a mortgage review to be carried out every six months.
Is it better to review your mortgage every year or every six months? If you only like numbers, the key is in the trend of the Euribor.
When is the best time to do a six-month check-up?
When the Euribor trend is downwards. You will benefit from these decreases over a shorter period of time. In other words, you will limit the period in which you pay higher interest.
When is the best time to review your mortgage annually?
When the Euribor is rising, it delays the increase in your loan instalments.
Now you're probably wondering , how can I know what the Euribor will do? And you're right!
Considering that the term of a mortgage can be up to 30 years, the Euribor will rise and fall during this period. It is very difficult for it to always maintain the same trend. Historically, it has never done so.
So what can you do? Put the numbers aside and focus on the mortgage review period that you are most comfortable with. With the semi-annual review you will gain flexibility for the good and the bad, while with the annual review you will be able to plan better.
In reality, the mortgage review period is just another element of a mortgage loan , but it is not even close to the most important one . Do you want to know what it is? We will tell you about it here. 