Although the final decision will depend on the latest economic data, inflation risks, and the situation in the Middle East, residents should prepare in advance for possible changes, says Laura Žukovė, head of financing at Luminor bank.
EURIBOR changes are not felt immediately
The EURIBOR rate applies to all individuals borrowing from banks and is the same throughout the European Union. Since last June, EURIBOR has remained at the 2% level.
According to the expert, it is important for residents to understand that ECB decisions are usually reflected in mortgage payments not on the same day. Most loans in Lithuania are linked to EURIBOR, and its value is recalculated according to the period specified in the contract.
“If the loan is linked, for example, to the 6-month EURIBOR, the payment changes only on the nearest interest recalculation date – at Luminor bank, interest rate recalculations take place every August and February. This means that even if interest rates rise, some clients would not feel the change immediately. And although in some cases it may seem that a longer EURIBOR rate period is unfavorable, in fact, it provides stability – this growth can be better prepared for. It is worth taking action before a higher payment appears on the account,” says L. Žukovė.
Payments are influenced by other factors as well
However, the size of EURIBOR is not the only factor determining the monthly loan payments. According to L. Žukovė, a possible rise in EURIBOR would primarily mean a higher monthly payment for those whose loan interest rates are variable. How much it would increase specifically depends on the loan balance, term, bank margin, and the chosen EURIBOR period.
“It is important not to try to guess based only on headlines. It is much more useful to calculate several scenarios – for example, how the payment would change if EURIBOR rose by 0.25, 0.5, or 1 percentage point. This will allow a realistic assessment of whether the family budget could withstand a higher financial burden,” says the expert.
Start with your daily budget
According to L. Žukovė, when preparing for a possible interest rate increase, it is best to start with your daily budget. You should assess what portion of your income goes to the mortgage, how much remains for essential expenses, savings, and unforeseen cases.
“If the payment increased, it is important to know where the additional funds would come from. Therefore, it is worth reviewing expenses and distinguishing what is necessary and what is more emotional or impulsive consumption. Sometimes a few smaller decisions, such as canceling unnecessary subscriptions or postponing non-essential purchases, allow creating a significant reserve,” says the expert.
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She emphasizes that a financial cushion becomes especially important during uncertain times. Ideally, a family should have saved at least 3–6 months of essential expenses as a reserve.
“An interest rate increase is not the only risk. Income may change, health, repair, or other unexpected expenses may arise. Therefore, a financial cushion helps not only to react more calmly to a higher loan payment but also protects against the need to borrow additionally,” notes L. Žukovė.
According to her, when preparing for higher payments, it is also important to maintain financial discipline – not to make impulsive decisions and not to plan large purchases just because the current situation still seems stable.
Evaluate your loan conditions
The expert reminds that residents who feel greater anxiety about interest rate fluctuations can also consider alternative solutions, such as fixed interest rates for a set term. This option allows knowing your monthly payment exactly for a specified period but also has its own conditions.
“Fixed interest rates provide more clarity and help plan the budget, but this is not a universal solution for everyone. It is necessary to assess what the fixing cost would be, what conditions apply if you want to repay the loan earlier or change the contract. In other words, stability often comes at the cost of some flexibility,” says L. Žukovė.
She also advises not to rush to allocate all free funds to loan repayment if you have not yet saved enough. For some people, it may be beneficial to save part of the money, invest part, and allocate part to reduce obligations, but such a decision should be made according to the individual situation.
“The most important thing is not to try to predict EURIBOR as accurately as possible but to consistently prepare for several possible scenarios. If you know your budget limits, build a financial cushion, and understand the terms of your loan, even an interest rate increase becomes not a shock but an easily manageable change,” summarizes L. Žukovė.
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