The era of easily accessible fixed-rate mortgages may be over, at least for now. While rates bottomed out in early 2021, a recent reversal of fortune is impacting borrowers, even as central banks begin to ease monetary policy. In Italy, the best fixed-rate mortgage offers have risen from around 2.70% in the second quarter of 2025 to approximately 3.55% currently, translating to a monthly payment of roughly €440 for a 25-30 year loan. This shift is coinciding with a slowdown in mortgage refinancing activity.
The Role of the 30-Year IRS
Driving this trend is the 30-year IRS – the Interest Rate Swap – a benchmark for long-term lending rates within the Eurozone. Banks utilize the IRS as a reference point when setting fixed rates on 30-year mortgages, the most popular term for Italian families. The IRS has climbed to 3.17% recently, its highest level since autumn 2023, when Eurozone interest rates peaked before beginning a decline.
the cost of money has increased. This appears paradoxical given that the European Central Bank (ECB) cut interest rates by 2% between June 2024 and June 2025. One might expect lower mortgage rates as a result. However, the ECB’s monetary policy primarily impacts short-term rates, reflected in the Euribor. The three-month Euribor currently hovers around 2%, aligning with the rate banks charge on deposits.
Debt, Inflation, and Geopolitical Factors
What, then, is influencing the 30-year IRS, and long-term mortgage rates? The answer lies in inflation expectations and perceived credit risk. Both have increased over the past year, largely due to announced increases in European defense spending. Germany’s proposed €1 trillion multi-year plan for rearmament and infrastructure investment has significantly driven up German bond yields, which serve as a benchmark for the region.
Macroeconomic and geopolitical decisions, seemingly distant from everyday life, are directly impacting consumers. The increased cost of securing a new mortgage is a consequence of anticipated increases in sovereign debt. The ECB has limited ability to reverse this trend. Even if it were to further cut rates, it would primarily compress yields on the short end of the curve. Cutting rates without appropriate macroeconomic conditions could destabilize inflation expectations and erode the central bank’s control over long-term rates, potentially causing them to spike due to fears of price instability.
A Resurgence in Variable-Rate Mortgages
With the IRS at its current level – and likely to remain elevated in the coming months – variable-rate mortgages are becoming increasingly attractive. The most competitive offers in Italy currently cost less than 2.70% (TAN) on 20-30 year terms, significantly lower than rates available in previous years and fixed-rate mortgages. Borrowers can leverage mortgage refinancing (surroga) to switch between variable and fixed rates as market conditions change, providing a valuable degree of flexibility. Banks are incentivized to avoid offering overly disadvantageous rates upfront, as they risk losing customers.
However, the IRS and the Euribor are not independent. Rising inflation expectations could compel the ECB to raise rates again. This would tighten conditions for variable-rate mortgages and may not immediately lead to a decline in long-term rates.
The interplay between central bank policy, long-term interest rate swaps, and geopolitical events is creating a complex environment for mortgage borrowers. While the ECB’s rate cuts offer some relief on the short end, the factors driving up long-term rates suggest that the days of ultra-low fixed mortgage rates are likely behind us, at least for the foreseeable future. The current situation underscores the importance of borrowers carefully considering their options and understanding the risks and benefits of both fixed and variable-rate mortgages.
As of , the average 30-year fixed mortgage rate in Italy is approximately 3.55%, up from 2.70% in the second quarter of 2025.
