French amortisation
In Italy, mortgages are almost universally repaid using the French amortisation method (constant instalment). In this method each payment is equal throughout the loan term, but its composition changes over time: in the first payments, interest predominates; in the last, capital repayment predominates.
The mortgage payment formula
Payment = C × [i / (1 − (1 + i)^(−n))], where C is the financed capital, i is the monthly interest rate (annual rate ÷ 12), and n is the number of payments (years × 12).
Example: mortgage of €200,000 at 3% annual rate for 25 years. i = 0.03/12 = 0.0025; n = 300. Payment = €200,000 × [0.0025 / (1 − 1.0025^(−300))] ≈ €948/month. Total interest paid: €948 × 300 − €200,000 = €84,400.
Fixed-rate vs variable-rate mortgage
- Fixed rate: payment unchanged for the full term; protection from rate fluctuations; initially higher rate
- Variable rate (Euribor + spread): payment can rise or fall; risk if rates increase; initially lower rate
- Mixed rate: switches between fixed and variable at agreed conditions
Effect of the loan term
Increasing the loan term reduces the monthly payment but increases total interest paid. A €200,000 mortgage at 3% over 20 years has a payment of €1,109/month and total interest of €66,200. Over 30 years, the payment falls to €843/month but total interest rises to €103,500.
Early repayment
Since 2007 (Bersani Law), mortgages for purchasing a primary residence signed after 2 February 2007 incur no early repayment penalties. For earlier mortgages or second homes, penalties may exist but are still limited by law.