After years of crisis and paralysis in the real estate sector, it seems that the housing market is starting to get out of lethargy and banks are glad to be able to grant mortgages again.
And even if you don’t do it at the unbridled speed of the “brick years,” floor prices rise like foam and financial institutions already rub their hands thinking about the revival of their business while customers wonder desperately what mortgage They are more interested.
In an article in this blog we already tell you how a mortgage works and what aspects you should take into account when choosing yours. Do not forget that the floor and ceiling clauses and opening commissions have been declared abusive by various courts and that your contract should not contemplate them. As the interest rate that will apply to your mortgage loan will be one of the things that most concern you, we analyze it in depth.
Mortgage interest rates
We could distinguish up to three interest rates when we talk about a mortgage.
1. The variable interest. As the name implies, it is a type that must be reviewed from time to time (quarterly, semi-annually or annually) to update it according to the reference index of the mortgage loans, the famous Euribor. For example, you sign your mortgage with an interest of 1.15 + Euribor. In recent years the Euribor remains in negative figures, which means that your interest will not increase. If when your mortgage is reviewed this index has gone to 0.10%, for example, you will pay 1.25 interest, and so with each review as established in your contract. At present, it is an advantage to sign a mortgage with variable interest precisely because of those negative figures presented by the Euribor and also in this type of contracting the initial interest rate is usually lower than that of fixed-rate mortgages and the option of payment terms is usually offered Longer amortization, usually between 20 and 30 years. As a disadvantage, you run the risk of having to pay a higher fee if interest goes up.
2. The fixed interest. In this case, the monthly fee payable will remain fixed throughout the entire contract, regardless of the variations in the Euribor. The advantage of this modality is that it allows you to know in advance how much you will pay each month, without revisions and without the hypothetical increases of the Euribor causing you an ulcer. As an inconvenience, at the time of hiring a higher rate is usually established than for variable rate mortgages and repayment terms are usually shorter.
3. Mixed interest. These mortgages combine a fixed interest for an initial period (usually between three and five years) and then change to a variable rate. It is the option chosen by those families who prefer to have their economy more tied in the first years after the acquisition of housing, in which it is foreseeable to have less funds for the expense of buying a house. Its advantage: that allows us to organize our economy with guarantees the first years. The disadvantage: that we cannot venture how the Euribor will be when we begin to pay our variable interest, with the risk involved.
Fixed or variable interest, which is better?
It is the great dilemma of any future owner and there is no universal answer for him. Currently it might seem that the variable interest mortgage is the best option. The fall in interest rates to minimums since March 2016 has caused the Euribor to carry negative figures since then allowing families with variable mortgages to save a few euros on their monthly receipt. The banks responded to this reduction in their income by promoting fixed-rate mortgages and reminding their clients of the ravages caused by the Euribor back in 2008 when it reached above 5%. Which one to choose then? Well, everything will depend on your situation.
A fixed rate mortgage has the appeal of giving stability to the payment of the fee
It is not expected that the Euribor remains below 0 for many more years, and if we take into account that a mortgage is paid at 20 or 30 years, perhaps in the long term it is sensible to think about this option. However, many economic experts point out that as long as the Euribor remains below 2%, the variable mortgage is still the best option. Think of all the money you can save until this happens! By then you could take all those savings and pay off a portion of your mortgage.
Rate all options well before choosing one or the other and do not think only of what you will pay today, but what you will pay for the next 20 years. If your priority is security, the fixed rate is the stable one. If you prefer to reduce your receipt for now and do not mind risking, value the variable interest. You can always also check with your bank if you could pass from one interest to another when you wanted and under what conditions if necessary.