Fixed, mixed or variable mortgage: Which is the best option for you?
Choosing the right mortgage to buy a house is an important decision. In this article, we will help you choose the best option by comparing between the different types of mortgages: fixed, variable and mixed, so you can see which of all of them best suits your profile and which is the best mortgage in your case.
Comparing mortgages As mentioned above, choosing the perfect mortgage is a complex task, but it is important to compare well the different offers and modalities to see which one adapts more to our profile and needs. Below, we will analyze some mortgages of each type and make comparative tables.
Fixed-rate mortgages are those that establish an interest rate throughout the life of the loan. They are designed for those people who do not want surprises in their mortgage payment, so they are not referenced to the Euríbor, since this is a volatile index that currently threatens to rise to positive values.
If you want to avoid that an increase of the Euríbor can unbalance your domestic economy, the solution is to contract a fixed rate mortgage.
Let’s analyze the advantages of fixed mortgages:
✅ Your monthly payment will be the same throughout the life of the loan because the fixed-rate mortgage is not referenced to the Euribor.
✅ In addition, currently, there are still banks that offer competitive fixed rates.
✅ It allows you to choose the interest rate that suits you best by adjusting the term.
As with everything, not everything is perfect, there are also some drawbacks to fixed mortgages:
❌ In the event that the Euribor, is at minimum levels, you cannot take advantage of them.
❌ Most fixed rate mortgages have a commission for interest rate risk. It is a commission that banks apply in fixed-rate mortgage contracts in case of total or partial amortizations or subrogations of these mortgages to another entity.
❌ This commission will only be applied if at the time of cancellation of the mortgage loan we find ourselves in a situation of low interest rates, where Euribor plus the differential is lower than the fixed interest rate of the mortgage.
❌ In that case, there would be a capital loss for the bank and the customer/debtor would have to pay the commission.
❌ Sometimes the terms are not as long as in the case of variable mortgages.
Variable rate mortgage:
The variable rate mortgage has always been the preferred option for most customers in the mortgage market, reaching up to 90% of contracts historically. However, this trend began to change in 2018.
Currently, with the Euribor situation and the possibility of a rise in this index, it is advisable to consider a fixed-rate mortgage and take advantage of the offers offered by banks before interest rates rise. However, variable rate mortgages also have their advantages.
The advantages and disadvantages of variable rate mortgages will be analysed below:
Advantages of Variable Rate Mortgages:
✅ If the Euribor is in negative numbers, the value will be subtracted from the differential applied by the banks (unless otherwise stated in the contract). In this way, we would have a mortgage loan with an interest rate of less than 1 or 1.5%. In short, in the short term it is more beneficial to opt for a variable rate mortgage.
✅ The Annual Percentage Rate (APR) is lower than in fixed-rate mortgages, which means that the total cost of the loan is lower.
✅ The repayment terms are longer.
Disadvantages of the variable rate mortgage:
❌ If the Euribor were to rise in the coming months (as many experts predict), this could make the mortgage payment much more expensive.
❌If someone takes out a mortgage at a time when the Euribor is at its lowest point, they can take advantage of the situation and pay less for their mortgage financing.
If you are thinking of acquiring a mortgage, you have probably heard about mixed mortgages. These mortgages combine a fixed interest rate for a period of time with a variable interest rate referenced to Euribor plus a differential. In this article, we will show you the advantages and disadvantages of mixed mortgages so that you can decide if it is the best option for you.
Advantages of mixed mortgages
✅ Lower fixed interest rates: Compared to fixed mortgages, the fixed interest part of a hybrid mortgage is usually cheaper. This means that for the first few years of your mortgage, you will pay a lower monthly payment.
✅ Flexibility in terms: Most mixed mortgages are more flexible in terms, which means that you can adapt the payment period according to your financial solvency.
Disadvantages of Mixed Mortgages.
❌ Uncertainty in Variable Interest: Taking out a mixed mortgage generates more uncertainty, since when you come to pay the variable interest, the Euribor may or may not favour you. Therefore, you should be prepared to face variable and unpredictable payments.
❌ No Choice of Interest Rate: You cannot choose the interest rate that will be maintained first. The bank is usually the one that decides the fixed interest years, which means that it may not suit your needs.
In conclusion, mixed mortgages have both advantages and disadvantages. If you are willing to risk variable payments in the future, but with the advantage of lower monthly payments for the first few years, then a mixed mortgage may be right for you. However, if you prefer to keep the same interest rate for the life of the loan and have a more stable financial solvency, then a fixed mortgage may be a better option for you.
In any case, it is important to assess your needs and financial capabilities before making a decision. And remember, it is always advisable to consult with financial experts before making a decision as important as purchasing a mortgage.