Are you undecided between choosing a fixed or variable rate mortgage? Or are you considering switching your mortgage to a fixed rate? In this article, we’ll provide some insights to help you make a better decision between the two options.
What are the differences between the two options?
A mortgage loan can be contracted with different types of interest rates, with the most common being:
Fixed Rate – The interest rate remains the same throughout the entire term of the loan, meaning the monthly payment will always be the same.
Variable Rate – The interest rate of the loan fluctuates at regular intervals. You can have loans indexed to the EURIBOR rate with periods of 3, 6, or 12 months. This means that during these periods, the payment amount remains unchanged, but once the period ends, the payment will be recalculated based on the current market rate.
What are your concerns?
The choice between a fixed and variable rate will depend largely on your specific concerns. For many years, the preferred option was the variable rate. Unfortunately, this preference wasn’t always based on a mathematical reasoning, but rather on the fact that the variable rate was lower than the fixed rate, which made the initial monthly payment more affordable in the short term. However, over the long term, a fixed rate could potentially be the better option:
Fixed Rate – The ideal solution for those who want the security of knowing that their payment will remain unchanged throughout the loan. This option is chosen by those who value stability over savings. The price difference is seen as an insurance premium to guarantee stability and predictability.
Variable Rate – The solution for those who want their payments to adjust with the economic context and are open to price fluctuations. It is also the preferred option for those planning to hold the loan for a short period, as the early repayment penalties are significantly lower than with a fixed-rate mortgage.
Which option should you choose: Fixed or Variable Rate?
The decision between a fixed or variable rate is a very personal one. It depends on your risk tolerance and preference for predictability. As a precaution, it may make sense to opt for the fixed rate, although it is important to carefully consider the timing of locking in the rate. However, you should avoid overthinking the decision after it has been made to prevent unnecessary regrets.
Explore the different options for your case
To make the best decision for your specific situation, we suggest you explore proposals with different interest rate options. Our consultants can assist you throughout the process. You may find that the best option right now is neither a fixed nor a variable rate…
