The interest rates on a mortgage are 0% or even negative. Even, a competition between the banks themselves is being created for not charging or paying interest to their clients . This situation is far from that where this situation seems not to come.
If you are thinking of acquiring a home and you need to finance it with a mortgage loan you should know the different interest rates offered by mortgages as well as the evolution of them in order to decide.
What are the different interest rates of a mortgage
The most common classification of mortgage loans is that it is carried out according to the interest rate applied . Thus they exist:
Fixed interest mortgages
Fixed-interest mortgages are those where the interest rate remains unchanged throughout the life of the loan. This implies that the quota is always the same and does not vary based on changes in interest rates.
- In favor: it provides security.
- It is usually a higher type than the variable
- If interest rates fall there is no benefit against:
Variable interest mortgages
Are those loans where the interest rate is made up of a differential , that is, a little percentage, added to a benchmark . The most commonly used benchmark is the Euribor. Thus, the fees will vary when the Euribor does. You can finish the loan by paying a larger or smaller fee than when you hired it.
Variations in the benchmark are not transferred immediately, but based on the periodicity that has been set for such revisions. Thus, for example, if the Euribor falls by 0.10% in February, it will have no effect on your installments until your interest rate is revised, which if it is semi-annual, it will be in June.
- In favor: You can get very advantageous mortgage interest rates
- Against: Uncertainty
Mixed interest mortgages
It is the mortgages that mix the two fixed and variable interest rates . The first years are usually at a fixed interest rate and after that period it becomes variable with a reference rate as we have explained in variable mortgages.
- For and against: the same as in the fixed and variable interest rate, however, by combining both in different periods, the risks are more diluted.
It is a mortgage loan where the interest rate is variable and the installments constant . Thus, changes in interest rates translate into more or less life of the loan. When the rates fall, the term of the loans is shortened and if the interest rate rises, the term will be extended.
- In favor: security in the monthly fee
- Against: Uncertainty in the term of loan termination
Which is better for me, a fixed or variable interest mortgage?
Answering this question is not a simple task. To be able to decide well what is the interest rate of the mortgage that suits you, you have to analyze internal factors of your finances and your domestic economy, as well as external factors of the economy, even global.
We can help you optimize your domestic finances in our Personal Savings and Finance section.
Regarding the evolution of the mortgage market , it seems that the trend is that this fall interest rates will continue to fall and fixed-rate mortgages can reach below 2%.
Lately, a multitude of tools have proliferated that simulate the expenses and fees of a mortgage loan, such as the Mortgage Association simulator, which can help you get an idea of the operation.
Be that as it may, remember that you should advise yourself well before signing a mortgage because it is a time-consuming operation and a great commitment.