Fixed mortgage, variable or mixed mortgage. Which is better?

The inflation environment that we are experiencing in Spain, Europe and other parts of the world has changed the view of many on mortgage loans. Before the pandemic, the variable option was the most popular. Without even questioning it, people preferred to opt for this alternative to benefit from interest rates that, at that time, were negative.

But now, things have changed. The Euribor has gone from the lowest levels seen, to around the 3,5%. Whether it will continue to rise or begin to stabilize and then go down again is unknown, although many experts opt for the second option.

The problem is that, meanwhile, those who have already had their mortgage reviewed are facing considerable increases, which is why many are considering changing their loan to a fixed rate. However, it is worth asking, which is better? Fixed or variable rate mortgage?

Is it time to change your mortgage?

The fact that a few years ago the variable rate mortgage was so popular, and now things have changed, leads us to question whether there really is a mortgage that is better than another, or if it depends on the circumstances.

The conclusion is that Both options have their advantages and disadvantages.and the best option as such does not exist, since it will be both your economic environment and your personal situation that will determine it.

Now, for example, many people are considering changing their mortgage because the payments are increasing. But this, It might not be the best time to do it..

Inflation is an element that has completely changed the rules of the game. The fact that prices have risen so much has motivated the European Central Bank to increase interest rates at a dangerously fast pace.

Interest rates, to put it simply, determine the price of money. Raising them implies that the interest paid for requesting a loan increases. For this reason, the Euribor index (the reference for the interest paid on variable mortgages) also rises and, with it, the installments of all those who choose this option.

But the problem is that fixed mortgages also become more expensive. A few years ago, almost no one was interested in the fixed option, so if a bank wanted to convince a client to choose this alternative, it had to offer them something very competitive.

At the moment, just the opposite is happening, as everyone is looking for a fixed rate mortgage to always pay the same amount and not have to worry about future increases. This means that the bank can afford to not be as competitive, and offer higher interest rates.

Now, if we take as reference what the experts say, who point out that rates may stop rising in 2023and even go down again by 2024, switching to a fixed mortgage may not be such a good idea at this point as, within a year, variable payments are likely to start to reduce again.

Everything will depend, of course, on how much you are paying and how much the bank offers you.

Advantages of fixed rate mortgages

A fixed mortgage is one in which the interest you pay is just so, permanentwhich means that you will always pay the same fee, and the rises and falls of the Euribor will not affect you.
The advantage of this type of loans is more than evident. It’s about investing in peace of mind.

It has been studied that, in general terms, those who choose a fixed-rate mortgage end up paying more interest than with a variable one. However, that person You will not have to worry in any case if the Euribor rises.

Therefore, anyone who has chosen a fixed-rate mortgage in the years before the pandemic is probably sleeping very peacefully right now. And this is not the only advantage.

In addition to saving the scare of possible increases in the payment, fixed mortgages allow the buyer organize your personal finances much better. By always knowing what you are going to pay, you can calculate from the beginning the expenses that you will have to allocate to the mortgage, so that you can plan much better.

Advantages of variable rate mortgages

Although now it seems like there aren’t any, choosing a variable rate mortgage also has its advantages.

The most obvious is to be able to benefit from those times when interest rates are low. Furthermore, with variable rate mortgages The bank usually grants longer terms, which means they will give you more years to pay off the entire loan. This translates into the possibility of paying lower installments.

The variable option, as we have already mentioned, implies that, throughout the life of the loan, the buyer will pay less interest than if they chose a fixed rate. Of course, at times when the Euribor rises, he will have to face the increase in his quota.

The best thing if you want a variable mortgage is to plan it well. For a few years now, the bank has been legally obliged to inform its client of the possible fee increases that they would have to face if the Euribor rises. The client’s task is to be attentive and inform yourself very well before signing.

Therefore, if you opt for a variable option, calculate not only the amount you will have to pay at the beginning, but also how much it can rise if the Euribor goes, for example, to historical highs. If you have doubts about whether or not you will be able to afford that expense, stick with a fixed-rate mortgage. You will save yourself worries in the future.

The unknown option: mixed rate mortgage

You probably haven’t even heard of it, but the mixed rate mortgage is starting to become popular. You will soon understand why.

Mixed mortgages are a mix between fixed and variable. Basically, you reach an agreement with the bank whereby you pay a fixed rate for the first years (for example, the first five), which then becomes variable.

The reason for its current popularity is that we are in an environment in which the Euribor has risen a lot, but we also know that it will surely go down again, if not within a year, perhaps within two.

Therefore, choosing a mixed mortgage means having peace of mind during the years that high rates may last, and benefit after moving to a variable ratewhen interest rates have probably fallen again.

Of course, you have to get the timing right, something that is not always achieved. Like any type of investment, always taking a risk.

What can happen to the Euribor from now on?

What will the Euribor be in 2023 and 2024? It is the million dollar question that many people ask. The reality is that in 2023 it reached the level of 4%. A percentage that has not been seen since 2007just before the outbreak of the real estate crisis, which was the prelude to the 2008 recession.

However, markets are beginning to consider the possibility that interest rates will begin to fall this year by the European Central Bank. That’s why, The Euribor has already fallen to levels of 3.3%. Many experts consider that it could close 2023 below 3%.

Looking more long term, the market consensus estimates that the Euribor moves between levels of 2% and 2.5% during 2024. But let us remember that the photo moves and that these forecasts may change, as the economic conditions and the monetary policies of the central banks vary.