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Mortgage interest uncertainty weighing on your mind? Here's how to manage the costs

The main Euribor rates have been rising for over a year, before a dramtic drop on Tuesday, and that has translated into increased costs for borrowers in Finland.

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The housing market is currently favourable for buyers, if they can finance their purchase. Image: F Boillot/Shutterstock/All Over Press
Yle News

Borrowers in Finland have seen the key mortgage interest rates rise by around four percentage points in little over a year, fuelling inflation that is running at nearly ten percent.

Although a dramatic fall in Euribor rates occurred after a crisis caused by the collapse of Sillicon Valley Bank, mortgage rates remained mired in uncertainty.

Most mortgage holders in Finland have rates linked to either the three month, six month or 12 month Euribor rate. They are adjusted every three, six or 12 months, and the most common reference rate is the 12 month one.

The three and six month Euribor rates tend to be lower, but the shorter period between adjustments mean they offer a little less stability than the twelve month rate.

Whichever reference rate a borrower has, those facing an interest rate adjustment soon can expect a steep rise in costs.

"For example, if you have a loan of 150,000 euros, you would pay 6,000 euros, more interest per year, so that's 500 euros more per month," personal finance expert Michael Lutzeier told the All Points North podcast.

"That's a lot of money. So you should definitely be prepared for that. So that means you should always know when your interest rate adjustment happens and what your reference interest rate is."

Listen to the full podcast via Yle Areena, Spotify or this embedded player.

With Euribor rates expected to stabilise around the four percent level, borrowers can expect to be living with these interest rates for the foreseeable future.

Lutzeier says there are measures people can take if they are unable to manage the increased costs.

The first is to examine the monthly budget to see if savings can be made, and to seek out any possibilities to increase income. If that doesn't solve the problem, borrowers can also ask for a period of interest-only payments on their loan.

That means that for a period of one, two or three years, the loan amount will not be reduced — borrowers will pay only the interest.

"And then another option or possibility is to make a change to the loan period, to ask for a prolongation," said Lutzeier. "So that, of course, depends on how much loan period you have left. But if you have, let's say 10 years left of the repayment schedule, then you can ask to make it 15 or 20 or 25 years."

Lutzeier said that the cost of borrowing has created a buyers' market with bargains to be had for those looking to buy, while sellers might be forced to take a loss.

Prices have fallen, especially in the Helsinki region, and there are currently fewer buyers in the market for real estate.

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