Variable mortgage rate hikes: Suspicion of undercharging

The suspicion: paying less interest than agreed and no one goes to the street

Banks would be charging less than they are owed on variable-rate mortgages. The claim circulates insistently among professionals handling loan receipts—lawyers, accountants, advisors—and is based on an uncomfortable suspicion: that the rise in the Euribor is applied in a lower amount than signed so that the blow is not felt in the current account. If true, this would be a fraud of considerable dimensions. What exists, for now, are testimonies and no published documentary evidence.

What is being denounced with variable-rate mortgages

The story repeats with few variations: the bank should recalculate the payment with the soaring Euribor, but instead applies a milder correction. The intended effect would be twofold. On one hand, that the mortgagor does not perceive the real extent of what they pay and there is no social alarm. On the other, that the portfolio does not fill with delinquent credits and the entity does not have to provision capital for possible defaults.

The legal objection is immediate: unilaterally modifying loan terms is equivalent to collecting a debt that does not decrease and interest that lasts forever. Any affected party could denounce this, as un-signed contract conditions are being applied. It is, in the words of those who argue this way, a full-blown scam.

Why would a bank charge less than the contract states?

The economic argument has its logic, and precisely for that reason it should be handled with caution. If payments rose as the Euribor dictates, a relevant part of the portfolio would fall into default. With a double-digit default scenario, banks would have serious solvency problems and the entire financial system would be affected. Some go further and maintain that the instruction may not have come from the entities themselves, but from higher authorities with an interest in keeping things still.

The macro consequences would not be innocuous. If the credit market ceases to reflect the real price of money, monetary policy loses its usual transmission and inflation becomes entrenched. In that scenario, the Euribor would have room to climb even higher, with the added cost that the adjustment would come later and more sharply. No one has provided, in any case, a reduced receipt to prove it: this is exactly what the skeptical side demands.

The Canadian case: payments that do not even cover interest

There is a real precedent of payments that amortize nothing. In Canada, around 20% of mortgages would have payments that fail to cover the generated interest: after paying, the debtor owes more than before. The mechanism is known in Spanish banking by another name: grace period.

There are cases described with precision. A mortgagor from 2007 to 30 years[/B> has agreed to a grace period of five years in which they pay only interest, with a Euribor differential of minus 0.10, when their original contract fixed Euribor plus 0.75. The outstanding capital does not drop a euro. In exchange, they have extended the term to 35 or 40 years. With such a combination, extending the calendar every time the payment tightens leads to a new product in the market: the eternal mortgage, one that accompanies from the cradle to the grave.

Why has the street not exploded with mortgage rate hikes?

Because the bulk of the Spanish mortgage stock was signed at a fixed rate, which dampens the blow. The variable loans that were about to burst already did so in the past, when the Euribor was moving in another direction. The result is an uncomfortable picture: while rates were at minimums, those who had signed fixed rates bore higher payments and were told they were ignorant for not taking advantage of the free money.

Now the omelet has turned, and the blame shifts sides. Some affected parties claim no one explained the possible consequences of a crisis, that the bank sold without warning. The response from the other side is cutting: a 30-year loan with the Euribor at 0% required asking what happens if rates rise to 5%, 6%, or 10%. And here enters the calculation many got wrong: a property worth 300,000 euros may end up costing more than double in interest by the end of the term.

Is it legal for the bank not to apply the agreed rate?

No, and that is the weak point of the entire theory. The review is applied when due, usually once a year in most contracts, not immediately. If the debtor stops paying, the bank calls and starts negotiating before declaring the loan failed. There is also a framework of good practices agreed with the Government that allows for grace periods and term extensions for those who request and meet requirements: a legal door that is confused with irregularity.

Hence, the supposed payment reductions may be better explained by this route than by a banking conspiracy. The other hypothesis on the table is equally simple: that someone is confusing a negotiated novation with a miscalculated receipt.

Fixed vs. variable: the blame that will not be forgotten

The collateral damage of the episode is political. Those who paid for ten years at a fixed rate, with more expensive payments, now see discussions about bailing out those who benefited from a cheap variable rate. The question hovering is whether those considered responsible will end up paying for the party of those who took the risk, and if this does not forever discourage financial prudence. Gasoline and diesel already experienced a similar wink in the past.

There remains a prediction with reservations, and it should be left with reservations because the cycle dictates. When the Euribor hits its peak and rate cuts approach, banks will start calling the most burdened mortgagors to offer them switching to a fixed rate with a lower payment. Many will bite. And they will end up paying for not understanding the product they signed, this time with the bank's signature as sarracena guarantee.