To finance your new mortgage you must consider all the options that you have at your fingertips; maybe you're already decided on it type of mortgage which you will choose. Today we will talk about fixed interest mortgages, which are very popular today for housing contracts. Here we will explain how the fixed rate market-based mortgages, the advantages it offers you and the differences compared to the variable rate.
Fixed rate mortgages - Pay the same interest every time
All the fixed rate or fixed rate mortgagesThey consist in that the rate and monthly payments will never change; here is the most important feature. For example, let's say you made a thirty-year mortgage contract: from the moment you sign, you already know exactly what your interest rate as well as your monthly payments. You can rest easy, since you will pay the same every month until the full payment is met.
Advantages of fixed rate mortgages
- You pay the same every month; don't worry about the variability of payments, this is not going to happen. With fixed-rate mortgages, you will pay the same amount of money until the amount of necessary payments is met, you can even contract for an interest of less than 3%.
- Stability; Fixed-rate mortgages are suitable if you plan to live in a home for a long time because payments do not increase, which offers stability and convenience for buyers. The fixed rate does not depend on the Euribor variants or other interest rates, making the fixed rate ideal for people who do not want to risk a drastic change in payments.
- Forget about the floor clause; As I have mentioned before, fixed-rate mortgages do not depend on reference indices for interest such as Euribor, which causes the floor clause not to be applied within this type of mortgages. Variable rate mortgages suffer from the floor clause since they depend on interest rates, which is why some buyers pay higher installments for long periods of time.
- Long terms; Because fixed-rate mortgages are so popular today, they have been better adapted to meet the needs of buyers. This helps the terms to be longer and longer, currently there are 30-year fixed-rate mortgages, with very affordable interest and prices.
- Offers increase; Fixed-rate mortgages are becoming more popular, more and more users feel secure with fixed payments and fixed interest, which makes the market evolve. Offers for fixed-rate mortgages surface to suit customer preferences. This is good but at the same time bad, since in the future we will see an increase in banking which will increase to adapt to the market with a preference for fixed-rate mortgages.
Disadvantages of fixed rate mortgages
- High interest rate; Fixed-rate mortgages are more conservative, you always know the amount of money you are going to pay, which can sometimes cause the interest rate to be a bit higher on fixed-rate mortgages than on other types of mortgages. This may change, as the popularity and offerings of fixed-rate mortgages improve benefits.
- More restricted trading; If you choose a fixed interest mortgage, you must take into account that they include exclusive commissions, such as the risk due to the available interest rate, which will apply to us if we decide to cancel our mortgage service.
This type of commission affects almost entirely fixed rate mortgages, although it can also affect variable mortgages under some specific conditions. - High commissions; in fixed-rate mortgages we usually find opening commissions of 1%. These commissions are lower in variable rate mortgages, which are 0.5%.
Difference between fixed and variable mortgage
- As I have mentioned before, fixed rate mortgages offer you stability, fixed payments, which do not change at all from the moment you make your home loan, and the potential to refinance later if your financial situation improves; you should consider the flat rate if you expect to give predictable payments.
- Variable rate mortgages offer a lower initial interest; however, payouts can increase quickly and dramatically, so keep this in mind. Variable rate mortgages are ideal for people who plan to stay in a property for a short time. On variable rate mortgages, you can expect changes in the amount of the payment that reduces the amount of money you still owe.
It is also necessary to denote that these are not the only differences between fixed and variable rate mortgages. They also differ in characteristics such as the repayment term and commissions.
The financing that the bank offers you may vary in terms of the two situations. In the fixed rate, the bank will probably finance you less than with a variable rate mortgage. The bank can increase financing, but the problem with this is that the more financing from the bank, the higher the interest rate they offer you.
Ideal features for a fixed mortgage
- Term of up to 30 years.
- Commissions less than 1%, which is the most common standard.
- Interest less than 3%.
- Fixed interest, which does not change over time.
- No floor clause, which can affect payments.
Fixed-rate mortgages today
There have been big changes in the financing of fixed-rate mortgages in the market, prices have changed dramatically, thanks to the fact that banks compete more and more to offer the most attractive mortgage offers for users. The terms are getting longer, some commissions are eliminated and the prices are lowered, which makes it easier to buy homes.
However, today we find price increases in fixed-rate mortgages, as they are increasingly required by buyers. This not only increases prices, but also alters the commissions and interest required to obtain a home.
Euribor and the way it affects the mortgage
Euribor is the reference index that publishes the average interest rate at which banks make short-term loans on a daily basis. It is the reference that we must always have on hand if we want to make the mortgage payment that we have planned. Does Euribor affect my mortgage?
It depends, the main difference is if the mortgage we take out is a fixed rate or a variable rate. If the mortgage is variable rate, then there is a relationship between Euribor and our mortgage, since the interest constantly varies and bank loans are changing. On the other hand, if the mortgage is of a variable rate, there is no direct relationship between Euribor and our mortgage.
This is why variable rate mortgages are recommended for people who do not want to submit to the worry of a drastic change in the bank interest rate, settling for a stable installment and variability.
How do I get the best fixed rate mortgage?
Are you determined or decided on a fixed rate mortgage? Good, but to find the right mortgage you will need some tips to get the best contract.
- Don't settle for just one bank; Different banks offer different mortgage loan offers. Find out well about the conditions in different banking companies, so you will have a wider range of choice.
- Calculate the fee to pay; You have already decided on the right bank, now I recommend you simulate the prices to pay based on the variables that your bank offers you. There are free applications on the internet that help you calculate the values you will pay, you just have to fill out some forms with the conditions that your bank offers you, such as interest, insurance and commissions.
- Mortgage guides; There are also some special guides to help you decide on the right mortgage. HelpMyCash is one of these guides that can be very helpful.
Conclusion
If your plan is to buy a house and you know that you will stay there for a long time, then you should focus on financing your fixed rate mortgage, since you do not have to worry about the changes that the future may bring in terms of your payments. Interest rates are changing, which can affect you for years to come, and you may end up paying much more for your mortgage than you actually had to pay.
Remember that this is a very important decision, which you must make after considering all the available options. It is a personal decision for which you must take into account the financial situation in which you are, do not take it lightly and decide well.