In the last decade, mortgage interest rates have plummeted. However, taking out the wrong home loan can end up being expensive for the consumer. Choose variable, fixed or mixed mortgage? In deciding the best one, the client’s age, socioeconomic status and risk profile are key factors.
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In recent years, the historical trend in which the clear protagonist was the variable rate mortgage has changed, leaning the market in favor of the fixed. As explained by ING, the variable mortgage, whose interests change depending on the evolution of the Euribor, is the type of loan that allows you to benefit from the current context of low interest rates more clearly and directly. However, it means facing a certain degree of uncertainty, since the amount to be paid will vary, either up or down.
One of the profiles that most prefer this mortgage are young people, since they usually have professional growth forecasts, which implies improvements in their salary in the medium and long term, so they could assume possible future fee increases. The variable mortgage is also demanded by those profiles who ask for a loan at reduced terms.
The current low interest rate scenario looks set to persist for some time and, therefore, most forecasts point to the Euribor will not experience too many changes in the short term. In this way, a client who needs a mortgage for a short period of time can benefit from the most competitive price of the variables without assuming too much uncertainty in the interest rate of his loan.
On his side, the fixed mortgage is the choice of the conservatives. Its fundamental characteristic is that its interest rate is always the same. For this reason, it is the option usually chosen by those whose economic situation is likely to remain stable over time and who could not assume possible increases in the quota. In addition, it is preferred by those willing to assume a very low level of risk and who enjoy the peace of mind of knowing that the interest rate will be the same throughout the life of the loan. It is also a mortgage sued for second homes that report a profitability to the owner, and therefore can afford somewhat higher rates, compensating for the peace of mind of knowing what must be paid each month.
The mixed mortgage responds to the needs of clients looking for a flexible loan with the advantages of variable and fixed. It combines the payment of a monthly installment at a fixed interest rate during the first years and then, until maturity, a variable interest rate is applied. In this way, it is situated as an intermediate product that combines both benefits and minimizes the drawbacks, since it offers a cheaper price than the fixed ones and gives you peace of mind in the face of possible rate increases in the period in which it would impact the most, which is in the first years of the loan, when more interest is paid according to the French amortization system.
Thus, it is an interesting option for those people who, regardless of their age, choose to acquire a fixed-rate mortgage in a short period of time. It is also a good possibility for those young people who prefer to pay low fees for the moment, but plan to improve their economic position in a few years. Likewise, the mixed mortgage is very well valued by the people who plan to repay the loan in the short or medium term, since they can benefit from a more competitive price than the fixed one, but without assuming the uncertainty of the variable’s quota variation.
Finally, also related to the assumption of amortization, this type of mortgage is an interesting option for those clients who plan to change their home, since in practice it represents a total loan repayment, they point from the entity.
INTEREST AT MINIMUM
According to the latest data from National Institute of Statistics (INE), interest rates on fixed-rate mortgages averaged 2.76% in the first quarter, which compared to the average of 4.88% a decade ago represents a drop of 43.44% . Similarly, the decreases have been reflected in interest on variable mortgages, since the average rate for the first quarter was 2.18%, compared to 3.47% for the same period in 2011, which represents a fall 37.18%.
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