One of the uncertainties when you are going to sign a mortgage is whether to opt for the fixed term or on the contrary the variable one. It is a decision that you can depend on pay more or less money for an excessively long period of time due to the life of this financial product. This decision must be made based on a series of variables, although one of the most determining factors will be that which has to do with the evolution of interest rates in financial markets. To the point that this data will give you more than one clue to choose one or another financing model.
In any case, the price of money will be vital for you to link your mortgage at one or another type of interest. At this time, the decision of the European Central Bank (ECB) to lower the price of money It has made the contracting of variable-term mortgages much more profitable than before. Because depending on this monetary strategy, the savings you will have in the monthly installments will be greater. In this sense, you cannot forget that interest rates in the euro area are at minimum levels. A factor that helps you choose this mortgage option.
The price of money in the eurozone countries is at 0%. This in practice means that the money is worth nothing and therefore it is always much more satisfactory for your interests to subscribe a variable rate mortgage than a fixed one. However, this is a scenario that will not last all the time and at any moment it can turn around and catch you in a changed step. With which, it can generate a series of risks in the medium and long term that you must take into account when formalizing this financial product. Because a lot of money is at stake in this kind of high-value operations.
Mortgages: the most contracted?
According to the latest data provided by the National Institute of Statistics (INE), it is clear that the variables are the majority among Spanish users. Upon finding in its report that in mortgages constituted on homes, the average interest rate is 2,73% (13,5% lower than December 2016) and the average term of 23 years. While 62,5% of home mortgages are at a variable rate and 37,5% at a fixed rate. Another relevant piece of data from this study is that fixed-rate mortgages experienced an annual rate increase of 4,9%.
The monthly report of the INE also emphasizes that the average interest rate at the beginning is 2,54% for mortgages on variable rate homes (with a decrease of 18,6%) and 3,13% for fixed rate (3,5% lower). As regards the total number of mortgages with changes in their conditions registered in the property registers, it is 5.519, 24,4% less than a year ago. With regard to housing, the number of mortgages that modify their conditions decreases 17,6%.
With what type do you pay less?
One of the questions that arise is with what kind of interest rate they will ultimately pay less money for the formalization of their mortgage loan. Well, everything will depend on which scenario the interest rates present at each moment. For this, you are in a position to save a few euros through the monthly installments. In the current one, the most advantageous thing is to lean towards the variable rate. Among other reasons, because you can find in the current mortgage offer spreads even below 1%.
This has a lot to do with the evolution of the European benchmark, the Euribor, to which more than 90% of the variable rate mortgages in our country are linked, according to the data provided by the National Institute of Statistics. This is due to the fact that this reference source is at historical lows. Specifically, after many years it is located in negative territory, specifically at -0,161. And this helps your outlay for this product to be lower than before and in any case more profitable than if you opt for the fixed rate on your mortgage.
Fixed rate valuation
In any case, a change by users has been detected in recent months. In favor of fixed-rate mortgages above the variables. This variation in the aptitude of the clients is mainly due to a change of scenario in the monetary policies. In the European Union, interest rates are expected to start rising by the end of this year, albeit gradually. Something that has already begun to develop in the United States, where the interest on money has risen to levels of 1,50% and 1,75%. Faced with this new scenario, fixed-rate mortgages once again enjoy the preference of applicants.
Applying this strategy can be very profitable for your interests in the medium and long term. The reason is that you will have to perform a greater economic effort, but over the years it will balance out as a result of a lower differential with respect to variable-term mortgages. In this sense, the average interest rate at the beginning of the operation is 2,54% for mortgages on floating-rate homes and 3,10% for fixed-rate mortgages.
Always with the same monthly fee
But you will also have the advantage that always you will pay the same monthly fee. Whatever happens in the financial markets. So that in this way, you are in a much better disposition to plan your personal or family budget. Because you will not have any kind of surprises during the duration of the contract. Unlike the variables that depend on the fluctuations of the financial markets. In this sense, if your intention is to have greater peace of mind from now on, it is best to formalize one of the variable rate mortgages. Although at the beginning you pay more money, after several exercises the amount of this financial product will be reduced.
From this scenario, it will also be convenient for you to know that at a fixed rate the commissions are more demanding. Because in effect, they apply an interest that oscillates between 1% and 1,5% and that on the other hand they usually incorporate in some cases a risk commission for the interest rate. It is a risk that you will have to run to opt for this alternative to financing. In exchange for not having variations in the mortgage expenses. They are the lights and shadows of both models of financing for the purchase of a home.
Scenario in interest rates
In any case, if your intention is to subscribe a mortgage loan at this time, perhaps the best decision is the variable rate because it is the most profitable option. Because their spreads are more affordable for your personal interests. But if you look more in the medium and long term because you will not have news throughout the life of the mortgage. It will not give you the same, what happens in the financial markets, even if a scenario of rise in interest rates is fulfilled. That is, at first you will pay more money, but then your personal accounts will be balanced or improved.
At this time, fixed-rate mortgages have an interest rate higher by one or two percentage points with respect to the variable rate. Therefore, it is a very personal decision that can change at any time and depending on monetary policies by the European regulatory bank. On the other hand, there is also the alternative of mixed mortgages, which is a very particular mix of both models. With the advantages and disadvantages of these financing formats.
Terms of stay
From now on, you will only have to take the calculator and check which is the best recipe to pay less euros in your monthly payments during the terms of permanence of these financial products. In this sense, the maximum amortization period has been lowered to 35 or 30 years. After it was almost 50 years before the economic crisis. Not surprisingly, it is another of the factors that you should take into account to know if it is convenient for you to take out a fixed rate mortgage or, on the contrary, a variable one.
On the other hand, another element of analysis is the commissions and that in the current scenario are being minimized. It is even more and more frequent that they are exempt from these expenses as a result of a very low interest rate scenario. In any case, they represent up to 2% of the amount demanded in the operation. And that they can finally make the final cost more expensive for its formalization from now on. On the other hand, there is also the alternative of mixed mortgages, which is a very particular mix of both models. With the advantages and disadvantages of these financing formats.