Variable rate mortgages with rising payments

Rising Interest Rates and Financial Pressure: How Adjustable Rate Mortgage Borrowers are Coping with Uncertainty

In the midst of ongoing macroeconomic and geopolitical uncertainties, borrowers with adjustable rate mortgages are facing an increase in financial exposure due to rising interest rates. According to a recent analysis by CRIF, 26% of active mortgage loans were at a variable rate in January 2022. The average installment of these loans increased on average by +36% compared to the lows of mid-2022, with a peak of +49% for mortgages disbursed in the last 5 years.

The CRIF analysis also showed that the growth in interest rates led to a +25% increase in overall debt levels for those with variable rate mortgages over the past 5 years. Although there was no significant increase in insolvency rates among variable rate mortgage holders, there was an increase in financial tension as indicated by CRIF’s financial tension index. This index indicates higher levels of indebtedness and a risk of failure among borrowers with variable rate mortgages.

Simone Capecchi, Executive Director of CRIF, commented on the impact of interest rate dynamics on variable rate borrowers over the past two years. While there has not been a significant increase in insolvency rates, there has been a notable rise in financial stress. The potential for a rate cut in June 2024 could provide relief for borrowers and help stabilize their financial situations.

Despite these challenges, it is important for borrowers to remain vigilant and prepared to face any future uncertainties that may arise. As macroeconomic and geopolitical conditions continue to evolve, it is crucial to stay informed about changes that may impact one’s financial stability and take proactive steps to mitigate any potential risks or challenges that may arise.

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