Significant savings on interest and principal payments for mortgage loans currently enrolled in a reduced and gradually increasing (step-up) payment plan, have been or will be received by borrowers who are able and willing to accept the banks’ proposals to convert their loans into amortizing loans with a fixed interest rate.
As is well known, the European Central Bank has asked banks to attempt to convert step-up loans (mainly mortgages) into amortizing loans by the end of this year. A necessary condition for the conversion is the borrower’s consent. Any loans not converted to principal-and-interest installments will be considered non-performing as of December 31, 2026.
The relevant conversion campaigns began in the last quarter of 2025, with acceptance/application rates reaching approximately 50% by the end of the first quarter for Alpha and Piraeus, which primarily hold step-up floating-rate loans in euros (note: ETE has negligible exposure to step-up loans, and Eurobank mainly has step-up loans with a Swiss franc clause). This was followed by a slowdown in the response rate as the segment of borrowers most likely to convert reacted quickly, with the process entering its “hard core.”
Banks are vigorously continuing their related campaigns, highlighting the low fixed interest rates offered (around 3% to 3.3%) for those who accept the conversion. The discussion regarding a potential interest rate hike by the European Central Bank, aimed at curbing inflationary pressures caused by the failure to reach a sustainable ceasefire agreement between the U.S. and Iran, is creating a supportive …as step-up loans have a floating interest rate that exceeds 5% at current monthly Euribor levels.
The reduced (fixed) interest rate, combined with the fact that the installment now repays (more) principal, is the key to significant cost savings, which in the examples below reach up to 41%, but could be even higher for larger outstanding balances, depending on the interest rate and installment amount. A similar benefit could arise for those who remain in a step-up variable-rate program, only if ECB interest rates “plummet” to levels comparable to those of the 2010s, which does not appear likely in the medium term.
17% interest savings over 12 years
For an existing loan under a reduced-payment plan, part of which goes toward (minimal) principal repayment, with a 5% variable interest rate, an outstanding balance of €100,000, and a term of 148 months, the borrower will be required to pay, based on current conditions, €146,000. If they convert the loan to an amortizing installment plan with a fixed interest rate of 3%, they will save €25,400, or 17%.
The monthly payment will increase from €559 to €815, with the term (148 months) remaining unchanged. The increase of €256 per month (45.8%) is high, but it must be taken into account that the current step-up plan projects a final monthly payment of €837 over time, while the lack of principal repayment results in a “balloon” payment at the end of the loan, amounting to 40,100 euros. Conversely, increasing the monthly payment to €815 and “locking in” a fixed interest rate of 3% reduces the total cost of principal and interest repayment to €120,600.
If the borrower prefers a lower installment, the loan term can be extended by 60 months (total 208 months) and the fixed installment set at €632, with a fixed interest rate of 3%. Due to the longer repayment period, the amount of interest saved decreases to €16,400 and the benefit is limited to 11% (total amount payable: €129,600).
Reduction of up to €90,800 in interest and principal
For an existing loan with a reduced installment, which is insufficient to repay the principal with a current balance of €100,000, an interest rate of 6%, and a remaining term of 223 months, the benefit could reach up to €90,800 if the loan is converted to an amortizing installment plan without extending the term. The total cost of repaying the loan will decrease from €222,700, based on current data, to €131,900 (a 41% reduction), as the interest rate will drop to 3%, with the monthly payment increasing by nearly €210, from €382 today to €591.
It should be noted that in the final phase of the step-up program, the monthly payment on this loan will rise to €611, slightly higher than the amount “locked in” by the borrower upon conversion to a fixed-rate loan. Additionally, a “balloon” payment of €109,500 will have accumulated due to incomplete principal repayment.
Since the borrower cannot afford the €209 increase in the monthly payment, it is recommended to extend the term to 283 months, with the principal and interest payment set at €500. With a fixed interest rate of 3%, the borrower will save 81,300 euros (i.e., from 222,700 to 141,400 euros) in interest and principal, with the benefit amounting to 37%.
Conversion of €1.25 billion in loans
To date, step-up loans in euros have been converted to amortizing installments, exceeding, according to estimates, €1.25 billion. Due to changes in the terms of the loan agreement, the old loans are derecognized and the new loan agreements are recognized. In cases where the NPV Loss, according to the bank’s calculation for the smooth repayment of the debt, is found to be higher than 1%, the loans are classified as restructured and require 1+1 years of regular servicing to return to standard, current status as “recovered.”
Projections for 30% of step-up loans
Banks have estimated that approximately 70% of borrowers in a reduced but escalating installment program will accept conversion to amortizing loans and have been making corresponding provisions since last year. In other words, they have budgeted that approximately 30% of step-up borrowers will not accept the conversion proposals and will be classified as non-performing exposures (Non-Performing Exposures - NPEs), even though borrowers are making their (reduced) payments on time.
The “resolution” of these loans will take time, as it will begin only when the installment escalation leads to the repayment of a sufficient portion of the principal. In light of the above, it is estimated that banks will attempt to securitize/sell the receivables from these loans within the 2027–28 period, provided market conditions permit.