When purchasing a home, most people turn to a mortgage. This type of loan is characterized as a guarantee of payment, undertakes to purchase the same property. It is what is called “mortgage” housing.
Sometimes you can also mortgage a home free of charge and to obtain funding at lower rates or amounts greater than the personal or consumer loans.
In Spain, almost all mortgage loans, 98% are contracted at variable interest (see article on EURIBOR). Interest is calculated every six months or a year by reference to EURIBOR for that period and added a small amount (eg, EURIBOR +0.5).
Variable interest mortgage loans in stable
In situations of interest rates and low inflation, often not even consider performing fixed-rate mortgages, since they usually have a much higher interest rate as variables. Therefore, in economies that are involved and expect stable medium and long term, which is the duration of the mortgage, provided we chose a variable rate mortgage.
When inflation rises
But what happens when the economy suffers a more confusing time? When prices (inflation) rise over the account, the central banks increase interest rates to curb consumption and (the money is more expensive, then reduce appropriations, as well as investors do not move your money if the simple interest deposits and offer acceptable.) This has an impact on variable rate mortgages were also affected by these increases when the time comes for their semiannual or annual review.
We watched the news and know many people who have seen their mortgage payments have risen to several hundred dollars, as appropriate, in recent years.
The question then, for anyone who wants a mortgage is: I prefer the fixed rate and eliminated the uncertainties?
Advantages and disadvantages of fixed rate mortgages
The stability of the payments is the main advantage is supposed to fixed rate mortgages. There will be affected by rate increases, although this is a double-edged sword, because when interest rates drop again, neither will benefit from this fall and will be paying a price above the market.
In addition, the interest rate differential between the adjustable rate mortgages (average of 4% APR for 25-year amortization) and fixed rate (average 6% for 25 years) gives us a margin for that despite increases types, let’s paying less than a fixed rate loan.
In any case, if the economy is stable, as in Europe, will the maxim that what goes up, down. And such long term loans as there is now, that even they are 40 years of depreciation, fees are lower and less noticeable increases.
Mixed rate mortgages
Another product offered by mortgage institutions is mixed. It is usually set a fixed term (eg five years at the beginning or end) and the remainder at a variable rate. This would be a good product if you are borrowing against a background of continuing uncertainty and rising rates. We’ll be quiet for five years, hoping the situation will be resolved.
Conclusion as to which type of mortgage we are more interested
In short, fixed interest are more expensive and usually have a lower maturity, which requires more solvent throughout the duration of the loan. In return, we will not affect the rise in interest rates, which can annoy at certain times to the rise of our shares.
In any case, variable rates are desirable because they are cheaper and allow greater maturity, so that contributions will be lower and more affordable, and to changes, we can always think long term we find moments of all kinds: rise and fall.