From Iran to your monthly mortgage payment

One of the most immediate effects of the war in Iran is the increase in mortgage costs. At first glance, it might seem that a distant war has no relation to the monthly payment of a mortgage loan. However, the benchmark index for most variable-rate mortgages, the Euribor, maintains a high correlation with interest rates, that is, with the cost of money.

Until just two weeks ago, it was expected that the European Central Bank would gradually reduce interest rates as inflation continued to moderate. In this context, the Euribor had already begun to adjust downwards progressively. However, this scenario has changed. The surge in fuel prices is once again putting upward pressure on inflation. When inflation rises, central banks usually react by keeping interest rates high—or even raising them—to curb price increases. This means that the ECB could be forced not only to postpone the planned cuts but even to reverse them.

The market has already begun to anticipate this possibility. The daily Euribor has risen from 2.22% to 2.52% in just a few days. However, the index that is actually used as a benchmark for mortgage reviews is the monthly rate, which currently stands at around 2.36%. A year ago, it was 2.39%. Those with variable-rate mortgages whose payments are due for review this March would have seen their interest rate reduced by approximately 0.2% in a scenario without geopolitical tensions. With current rates, however, the payment will remain practically the same. If the conflict continues and the monthly Euribor ends up exceeding the 2.39% recorded a year ago, variable-rate mortgage payments will rise again.