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The spread of fixed rate and variable rate mortgages

The mortgage spread is the difference between the reference rate for that loan and the rate actually paid to the borrower by the bank. In fact, it is the bank’s profit: the mortgage is structured like any other loan, thus providing for the granting of a loan amount against a repayment schedule in installments and the recognition of a certain interest rate . Obviously, the mortgage then provides for particularities, such as the institution of the mortgage (even if traditional loans also require certain guarantees).

The interests are therefore a fundamental component in the disbursement of a mortgage

The spread is a concept that in recent years has found much space in the media and is now better known by many Italians. Even if it was not a question of mortgage rates, the much publicized spread worked in the same way: it was always the difference between a reference rate (in that case the German ten-year government bond) and the one paid by the Italian State (on BTPs, a type of government title). In the same way, the borrower finds himself paying a difference between a rate conventionally chosen by the banks and that actually provided for by the contract.

This difference remains fixed for the entire duration of the loan

This difference remains fixed for the entire duration of the loan

Regardless of the type of interest rate chosen by the consumer, the profit required by the bank will always remain the same. We must not confuse this forecast with the difference between the fixed and the variable rate: in the first case, the rate remains fixed on all mortgage payments, while in the second it changes according to the trend of a given reference rate (such as the EURIBOR or the ECB rate). However, the spread established at the beginning of the contract will always remain the same: if the rate is fixed, then the interest to be paid will also remain the same, while if the rate is variable the changes will follow, but always with the same spread.

Simplifying this concept, assuming a blocked spread, a fixed rate would always be calculable as Eurirs rate (the one used for these calculations) + spread: the result will always be the same for the entire duration of the loan, because the Eurirs remains fixed. On the contrary, for a variable rate loan, the calculation to be made is Euribor (or ECB rate) + spread , with the result that will vary depending on the reference rate fluctuations. To find out anyway the amount of the mortgage spread requested by the main Italian banks, connect to this portal.

Spread in real time: what it is and how it affects funding

The real-time spread is a service offered by many websites, where you can monitor the progress of this important measure of the cost of state financing . To be able to make the best use of these tools, it is however necessary to understand how the spread works, since it has become a concept widely used in public debate, sometimes with many inaccuracies. The spread, depending on convenience, is used to scare consumers or, on the contrary, reduces its importance, stating that it only concerns the financial markets. Let us try to make this concept clearer.

Spread means the difference in the interest rate between a financial security and another , considered particularly reliable

interest rate

In the case of the spread that we often hear about, it indicates the difference in the rate of the Italian BTP , a 10-year government bond, and another state security deemed safe, called the benchmark : the spread, in most of the cases, refers to the German Bund , ie the 10-year government bond of Germany. The difference between the Bund and BTP therefore constitutes the spread: how to read this data? If, for example, the spread is at 200, it means that the difference between the rates of the two securities is 2%.

The Bund is chosen because it is considered a particularly stable and secure security

finance

When the spread goes up a lot, above 250 points for example, it means that the Italian state is paying a lot more to finance its activities and repay its debts. These seem very distant concepts from the daily life of citizens, but in reality when the State has to pay its debt a lot, it can allocate much less resources to essential functions such as welfare . Thus, a high spread is not good news even for ordinary citizens.

However, it is good to consider this measure with caution, which can also depend on turbulence on financial markets that have little to do with the actual performance of the Italian economy. In general, even if there is no precise rule, one can say that the markets and the spread punish instability , that is when we see the risk that the State is in difficulty to respect its economic and financial commitments. Finally, we must not forget that the spread, together with some reference rates, helps to establish the cost of variable rate mortgages.

However, to stay informed about these dynamics, you can connect to an online tool like the one prepared by Il Sole 24 Ore, to keep you informed about the spread in real time. The online tool allows first of all to display the current value of the spread , or rather the one at the last update, which is now reported on the same page. Furthermore, the percentage change compared to the previous update is also available. Finally, it is also possible to study the trend of this index during the day which, thanks also to an easy to understand graph, also indicates the maximum and minimum values ‚Äč‚Äčtouched in that period of time.