One of the most important purchases in a person’s life is the purchase of their home. The reason is very simple: the price of a property is so high that, unless we have enough cash to acquire it in Tocateja, we will have to go to a financial institution to request a mortgage loan to finance it. A loan that will undoubtedly be a heavy burden for most of our lives. There is no purchase as long as the mortgage.
For this reason, it is very important to consider what type of loan best suits our characteristics and needs now and in the future. It is an expense that we will have monthly and its planning is very important so as not to have unpleasant surprises every month.
From an era to this part, banks seemed reluctant to grant loans depending on the applied rate. In fact, in Spain, most mortgages are variable term, being referenced to the reference rate bank plus a differential that depends on each entity. Furthermore, in many cases, it is the banks themselves that have urged to change from fixed to variable rate when a mortgage review is carried out.
Variable interest mortgage loans
With variable interest mortgages, we are not always going to pay the same, since fluctuations in the market and in interest rates will sometimes make us pay more and sometimes less. That is, a variable interest mortgage is like this:
Variable interest = reference index + differential
The reference index is, as we have already said, a reference index of interest rates, which is usually the reference rate bank, and is what makes review after review, the monthly cost of our mortgage varies.
It is usually risky, because unless we are good financial analysts, nobody can predict the evolution of interest rates in the next fifty years, but taking into account the current market situation, and more so if we do not have any kind of burden, Variable interest can be a good option today, especially considering the low interest rates that currently prevail in the market.
Fixed Interest Mortgage Loans
The situation is diametrically opposite when we have a family. In those cases, when expenses soar and appear from anywhere, the children’s school, broken appliances, clothing, etc., it is convenient to have a fixed expense, although in some cases it is slightly higher than with the type of variable interest.
The main problem with mortgages at a fixed interest rate is that banks do not bet on them. There are a wide range of possibilities for variable-term mortgages, and some very competitive, but there are hardly any options for fixed-term mortgages. One more fact to consider, according to the OCU (Organization of Consumers and Users), for a mortgage fixed term is more profitable than a variable term (without taking into account the advantage of paying the same amount every month for your home) the values of the reference rate bank that weigh the mortgages of variable term would have to be equal or superior to 5% or on short terms.
It is a difficult choice, especially considering that it will accompany us throughout our lives. In short, it depends on two aspects: on the one hand, your personal situation: whether or not you have a family, the economic possibilities, whether you want to “risk” to save a little on interest, etc; and, on the other hand, the market situation. Right now, the most profitable is a variable interest rate, due to the many possibilities and options that exist and the market situation, but if you find a competitive fixed-rate mortgage, it is undoubtedly the best option.