Retail Banking
Rising interest rates: understanding the impact on mortgage repayments
Published on 15 June 2026
Even a modest increase in interest rates can have a significant impact on household budgets, particularly for borrowers with variable-rate mortgages.
Following the European Central Bank’s latest decision, ABBL CEO Jerry Grbic explains why repayment capacity, financial planning and early dialogue with banks are more important than ever.
Summary
The European Central Bank (ECB) has decided to raise its key interest rate from 2% to 2.25%, a move intended to help contain inflation in a still fragile economic environment.
While an increase of just 0.25 percentage points may appear limited at first glance, its effects can be very tangible for households financing a property purchase or repaying an existing mortgage.
Speaking to RTL Télé Lëtzebuerg, ABBL CEO Jerry Grbic highlighted the importance of understanding how changes in interest rates can influence borrowing costs over the long term and affect household finances.
When a quarter of a percentage point makes a difference
To illustrate the impact, RTL examined the example of a two-bedroom apartment in Junglinster valued at around €1 million.
For a mortgage over 30 years, a rate increase of 0.25 percentage points could result in approximately €145 in additional monthly repayments for a borrower on a variable-rate loan.
Over the full duration of the mortgage, this represents more than €52,000 in additional costs. Should interest rates continue to rise, the cumulative impact could become even more significant.
These figures highlight how even relatively small movements in interest rates can translate into substantial financial consequences over time.
€52,000
- +0.25% ECB rate increase
- +€145/month on the example mortgage
- +€52,000 over 30 years
Repayment capacity remains the key consideration
According to Jerry Grbic, the starting point for any borrowing decision should always be a realistic assessment of repayment capacity.
He explains that borrowers who have the possibility to do so may wish to consider fixed-rate solutions, either for the entire mortgage or for part of it, depending on their personal circumstances and long-term financial plans.
A fixed-rate mortgage can provide greater certainty regarding future repayments and offer protection against further interest rate fluctuations.
At the same time, every situation is different. Some borrowers may prefer to retain a degree of flexibility, particularly if they anticipate receiving additional funds in the future that could be used to reduce their outstanding loan balance.
We always recommend that clients assess their repayment capacity and determine what level of borrowing they can comfortably manage.
Jerry Grbic
CEO, ABBL
The importance of speaking to your bank early
Higher interest rates are only one part of the equation. Inflation and broader economic pressures may also place additional strain on household budgets.
For this reason, Jerry Grbic stresses the importance of maintaining an open dialogue with one’s bank and seeking support as soon as difficulties arise.
Depending on individual circumstances, banks may be able to explore solutions on a case-by-case basis, such as adjusting repayment schedules, extending loan maturities or, where appropriate, granting temporary repayment relief.
The earlier these discussions take place, the greater the scope for identifying suitable solutions.
Key considerations for borrowers
- Assess your repayment capacity carefully
- Consider fixed-rate options where appropriate
- Factor potential rate increases into your budget
- Contact your bank early if difficulties arise
Navigating a changing economic environment
Interest rate developments remain closely linked to inflation dynamics, economic conditions and broader geopolitical developments.
While future decisions will continue to depend on these factors, the current environment serves as a reminder that borrowing costs can evolve over time and that financial planning remains essential.
For borrowers, understanding the potential impact of interest rate changes, assessing repayment capacity realistically and maintaining proactive communication with their bank can help ensure greater resilience in periods of economic uncertainty.
As Jerry Grbic’s comments underline, even a seemingly modest increase in interest rates can have a meaningful impact over the lifetime of a mortgage, making informed decision-making more important than ever.
Jerry Grbic
CEO, ABBL
Published on 15 June 2026