Will home installments decrease with falling interest rates?

Will the decrease in interest rates impact home loan installments?

The European Central Bank (ECB) lowered, for the first time since 2016 and from a cycle of monetary tightening since 2022, the three interest rates.    

The reduction in question was 25 basis points, with the fixed rate for main refinancing operations falling to 4.25%, the rate for permanent liquidity provision to 4.5%, and the rate for permanent deposit facility to 3.75%.

After two years of consecutive increases, this is the first decrease in the three interest rates. Does this decrease have any relation to the variable rate home loan installments linked to the Euribor index? According to what can be read on Notícias ao Minuto, DECO PROteste explains that "there is no direct relationship between this ECB decision and home loan installments, which are indexed to Euribor (in contracts with variable rates)", since "the Euribor rates were already falling, in response to greater inflation control".

Therefore, "it only confirms a downward trend, although still timid." "In June, for example, the installments of all variable rate contracts decreased," can still be read in the explanation.  

In other words, the installments of these loans will continue to be reviewed according to the contract deadlines - Euribor at three, six or 12 months. "As for the Euribor, it is likely that a slow pace of decline will be maintained, which is reflected in small reliefs in the installment of the house with each contract revision. No major decreases are expected," reads the news.

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