Mortgage rate: how to get a low one and when it becomes usury
On this page
What the mortgage rate isHow to get a low rate, step by stepWhat to look for in the PIESThe mortgage you already have: can you lower its cost?When the rate becomes usuryThe most common mistakesIn practiceFrequently asked questionsSourcesTo get a low rate you need to compare several banks on the total cost of the mortgage, that is on the TAEG, and not stop at the first offer. A rate becomes usury only if it exceeds the anti-usury threshold, which the Bank of Italy calculates every quarter from average market rates.
What the mortgage rate is
The rate is the price you pay to have money on loan. In the mortgage documents you will find two acronyms. The TAN (tasso annuo nominale, nominal annual rate) is the percentage of interest that the bank applies to the capital.
The TAEG (tasso annuo effettivo globale, total annual effective rate) is more complete. It adds to the rate the costs linked to the loan, such as the arrangement fee and some insurance policies when they are compulsory. For this reason it is the right figure for comparing two offers.
You will find the TAEG in the PIES (prospetto informativo europeo, European standard information sheet), which the bank must give you. The differences between TAN and TAEG are explained in TAN and TAEG rates: the differences.
For a secured mortgage (mutuo fondiario), the one guaranteed by the property, the bank generally lends up to 80% of the value of the property. With additional guarantees it can reach 100%. The higher the loan is relative to the value, the more carefully the bank assesses your situation.
How to get a low rate, step by step
- Ask several banks for the PIES, with the same amount and the same term. If the terms are different, the comparison is not valid.
- Compare the TAEG, not the TAN. A low TAN with many costs can cost more than a higher TAN with low costs.
- Ask in writing which conditions are required to obtain the proposed rate, for example opening a current account or taking out a policy. If there are any, calculate the cost of each and include it in the comparison.
- Clarify whether the rate is fixed or variable. A variable rate changes over time, and with it the instalment. You can find the differences in Fixed or variable rate mortgage.
Also take into account the costs that are not interest. For a first home mortgage of €80,000, the substitute tax (imposta sostitutiva) is 0.25% of the amount disbursed, that is €200. In other cases the rate is 2%. Arrangement fees, appraisal and insurance are explained in Mortgage costs: arrangement fee, appraisal, insurance.
The First Home Guarantee Fund (Fondo di garanzia prima casa), managed by Consap, is not a discount on the rate. It is a State guarantee on the mortgage, which can help you if the bank asks for additional guarantees. The requirements change over time: check them on the Consap website before relying on this route. If you want to understand how the guarantee works, read First Home Guarantee Fund.
What to look for in the PIES
The PIES is long, but for the comparison a few lines are enough. Look for:
- the TAEG, that is the total annual cost of the loan;
- the TAN, and whether the rate is fixed or variable;
- the total amount due, that is how much you will pay in all;
- the instalment and the term, and whether the instalment can change over time;
- the conditions required for the rate, such as current accounts or policies.
If a figure is missing or unclear to you, ask the bank in writing before signing.
The mortgage you already have: can you lower its cost?
Yes, by two routes. The first is the surroga (mortgage transfer): you move the mortgage to another bank that offers you better conditions. The surroga is free of charge, as provided by article 120-quater of the Consolidated Banking Act (Testo unico bancario). It is covered in Mortgage transfer: how it works.
The second is to ask your current bank to renegotiate the rate. You can also repay the mortgage early. For mortgages taken out by individuals from 02/02/2007 to buy or renovate a home, early repayment carries no penalties (art. 120-ter of the Consolidated Banking Act). This does not lower the rate, but it reduces future interest. It is covered in Early repayment of a mortgage.
When the rate becomes usury
The law against usury, law 108 of 1996, sets a threshold for loans. Every quarter the Bank of Italy publishes average market rates, called TEGM (tassi effettivi globali medi, average effective global rates), and the anti-usury threshold is derived from those rates. The tables are on the Bank of Italy website, under average rates (TEGM) and usury thresholds.
The comparison is made on the total effective rate, which also includes commissions. A low TAN is not enough to stay below the threshold, because costs count too. If the effective rate of your mortgage exceeds the threshold in force in the quarter in which you signed, the law considers that rate usurious.
Be careful not to confuse things. A high rate is not automatically usury. It is usury only if it exceeds the threshold of the quarter. The threshold changes every quarter, so look it up directly on the Bank of Italy website and do not trust figures read elsewhere.
If you suspect that your rate exceeds the threshold, ask the bank in writing for the TAEG and the calculation that produced it. Then contact a lawyer or a consumer association before you stop paying. Acting alone, without an opinion, risks a mistake that is costly.
The most common mistakes
- Comparing only the TAN and ignoring the costs.
- Signing without having read the PIES and the TAEG stated.
- Accepting a variable rate without asking how much the instalment could rise.
- Thinking the rate is fixed forever, when it is linked to conditions that can change.
In practice
- Ask three banks for the PIES, with the same amount and the same term.
- Compare the TAEG of each offer, not the TAN.
- Ask in writing for the conditions required for the proposed rate and calculate their cost.
- Look up the anti-usury threshold for the quarter on the Bank of Italy website, and do not use figures read elsewhere.
Frequently asked questions
Can I ask the bank to lower the rate on my mortgage?
You can ask, but the bank is not obliged to say yes. The concrete routes are renegotiation with your current bank or the surroga with another bank. In both cases compare the proposals using the TAEG.
Does a high rate mean usury?
No. The rate is usury only if it exceeds the anti-usury threshold of the quarter, calculated from the average rates published by the Bank of Italy. Check the threshold for the quarter in which you signed.
Can a mortgage be moved to another bank without costs?
The surroga is free of charge, as provided by article 120-quater of the Consolidated Banking Act. Still, ask the new bank for a complete picture of the costs before deciding.
Sources
In the same chapter
- First-home mortgage (mutuo prima casa): how it worksA first-home mortgage (mutuo prima casa) usually covers up to 80% of the property's value. Here is how it works, what costs to expect and what to check before signing.
- First-home mortgage (mutuo prima casa): requirements and how to get one, including for under-36s and at 100%A first-home mortgage (mutuo prima casa) usually covers 80% of the value; with the Consap Fund up to 100% for under-36s and priority categories with an ISEE below €40,000.
- Mortgage transfer (surroga del mutuo): how it worksMortgage transfer (surroga del mutuo): you move your loan to another bank without penalties and at lower costs. How it works, an example with numbers and what to check before you apply.
General information, not legal or tax advice: the law and the notice of sale prevail.
