Fixed-rate mortgages remain attractive in Cyprus as a buffer against growing uncertainty over potential shifts in monetary policy. Banking executives said locking in an interest rate for a long period is currently a beneficial solution for people looking to take out a new mortgage without the stress of rising rates.
A potential interest rate hike in June—if confirmed by the European Central Bank (ECB) Governing Council on 10 June—will mainly affect specific categories of customers. It will hit those who have variable-rate loans and those who plan to take out a new loan. The ECB has already cut key interest rates several times since 2024, and since 11 June 2025, the main refinancing rate has stood at 2.15%.
In a hypothetical scenario where the ECB raises rates by 0.25%, customers with variable mortgages will see their monthly installments go up, even if the monthly increases are small. For example, on an outstanding loan balance of €100,000 with a 3.5% interest rate and a 25-year repayment period, a rate hike would add about €14 a month. If the loan balance is €150,000 and the rate increases by 0.25%, the installment will be €20 higher. For a loan with a €200,000 balance, a rate increase will push the monthly payment up by €30.
Borrowers who have locked in a fixed interest rate for three, ten, or more years will not notice these increases in their installments. This means the monthly installment paid by the customer will remain the same from the beginning to the end of the fixed-rate period, regardless of any changes in ECB monetary policy. However, if market interest rates fall in the future, the fixed rate will stay the same, meaning the customer could end up paying more than if they had chosen a variable rate.
The latest data from the Central Bank shows that fixed-rate loans are steadily gaining ground in the market. In corporate loans, there is a rise in the market share of long-term fixed-rate loans with an initial fixation period of over one year. This share jumped from just 1% in 2022 to 35% during the January–October 2025 period.
At the same time, the share of corporate loans with a variable rate and an initial fixation period of up to one year dropped from 99% in 2022 to 65% in the same period. The Central Bank said this shift reflects a growing preference among businesses for greater stability in their financing costs. The average interest rate for new corporate loans in Cyprus fell sharply from 5.4% in June 2024 to 3.6% in October 2025, marking a total drop of 184 basis points, which outpaced the 162 basis point decline in the Eurozone median.
This change represents a substantial 92% pass-through rate of the total reduction in the ECB’s Deposit Facility Rate (DFR), compared to a pass-through rate of 81% for the Eurozone median.
The Central Bank said this result was driven by the fact that a significant portion of new corporate loans in Cyprus are short-term and linked to the Euribor interbank market rate, which allows lending rates to adjust quickly to changes in the ECB’s key interest rates.
The sharp drop in interest rates has led to a significant convergence between corporate lending rates in Cyprus and the Eurozone median. By October 2025, the rate for new corporate loans in Cyprus stood at 3.6%, almost fully aligning with the Eurozone median of 3.5%. As a result, the gap, which had reached as much as 1.7 percentage points at its peak, narrowed to just 0.1%.