Falling interest rates – what do they mean for loans, savings and investments?

How will the policy rate cut in October affect my home loan costs? 

The expectations of rate cuts are already reflected in home loan reference rates, such as the 3-month and 12-month Euribor rates. 

For example, the 12-month Euribor has already dropped to 2.4% from approximately 4% in late last year. This is because the level of the 12-month Euribor is based on where the market expects the policy rate to be in 12 months.

For those who have a home loan, a fall in interest rates will become tangible on their interest rate adjustment date, which is once a year if your reference rate is the 12-month Euribor. If your interest rate adjustment date is approaching now, the reference rate in your home loan will fall by a little more than 1 percentage point, as the 12-month Euribor is now that much lower than a year ago.

For example, if you have a home loan of 200,000 euros, are repaying it in equal payments (annuity) and the remaining loan period is 20 years, a reference rate that is 1 percentage point lower means a decrease of about 200 euros in interest expenses. This translates into a decrease of about 100 euros in your monthly loan payment, as the share of the instalment will grow, respectively.

Read more about Euribor rates

When will my variable rate be adjusted?

If your reference rate is a Euribor rate, you will see the start and end date of your interest rate period under your loan details in Nordea Mobile and Netbank. Your reference rate will be revised at the end of the interest rate period. 

The new reference rate applied to your loan will be the rate quoted two banking days before the end of the interest rate period. As an example, if the interest rate period ends on a Friday, your new reference rate will be determined by the rate quoted on the Wednesday preceding it.

We will announce any revisions to the Nordea Prime rate at least 14 days before the new rate enters into force.

Read more about Nordea Prime

How can I change my home loan reference rate?

You can apply for a change to the reference rate from the 12-month Euribor to Nordea Prime or vice versa by filling in the appropriate form. If you want to discuss the 3-month or 6-month Euribor, please call us.

Read more about changes to the home loan repayment schedule

How will the falling interest rates affect my savings in an account?

Nordea’s analysts estimate that interest rates will continue to fall moderately. If interest rates fall to about 3%, this will not have a big impact on savings deposited in an account. If interest rates continue to fall next year, we might see a more significant impact.

As interest rates are expected to fall, banks are currently offering higher interest rates for short-term deposits than for long-term deposits. For example, a 3-month deposit would earn you higher annual interest at the moment than a 12-month deposit. On the other hand, you get the same interest rate for the entire period for the longer-term deposit even if interest rates fall further.

You should always save money for a rainy day in a savings account regardless of whether interest rates fall. When you are satisfied with your buffer, it’s time to also look into investment funds.

How will the falling interest rates affect my holdings in investment funds?

It’s always best to take a long-term approach to investing in funds, and invest over several years. You shouldn’t give up on your investment plan or regular monthly saving – you can always save and invest in a way that suits your needs and risk profile.

Bond funds are especially affected by interest rate movements because their return depends on the general interest rate level. Higher interest rates mean lower returns on bond funds and vice versa, so in the short run, a decline in interest rates may offer higher return potential for those investing in bond funds.

How will the falling interest rates affect my monthly saving?

Regular saving is always a good idea. We recommend that you stick to your saving and investment plan even when the markets are volatile. If you want to discuss your situation or update your plan, you can book a free meeting with one of our experts. Read more and book a meeting to get investment advice

How will the falling interest rates affect my equity investments?

The equity market has benefitted more from the recent improvement in the outlook for the economy than the interest rate environment. This means that the falling rates will not necessarily affect equity investments that much. 

Investors should always take a long-term approach and look beyond individual events. It’s important to make an investment plan and stick to it – especially in times of market volatility.