What interest rate for your mortgage?
OCT 16 2018 | PROPOSED BY OUR PARTNER ING LUXEMBOURG
The answer depends on several parameters specific to your personal situation. Here are some things to help you make the right choice before taking out a mortgage with your bank.
Fixed rate: security and less flexibility
The formula guarantees you a certain serenity. You benefit from a rate that will not move, from the beginning to the end of your credit, even if the market experiences significant fluctuations. You know in advance the amount of all your monthly payments and are safe from a bad surprise.
On the other hand, the amount of the fixed rate is generally higher than that of a variable rate and you will not be able to question the predefined repayment plan. You will not be able to make early partial repayments. Only the full refund is allowed subject to payment of penalty fees.
Generally, the fixed rate is the right option when interest rates are low (which is the case now) and you borrow over a long period. You benefit from a favorable rate throughout the duration of your loan.
The variable rate: a risk framed
Each year, the variable rate (and therefore your monthly payments) increases or decreases according to the evolution of the rates at which the banks are financed (the reference index is usually the Euribor or interbank rate in euros).
In addition to being initially lower than the fixed rate, the floating rate has the advantage of being more flexible. You can repay in advance without charge and thus shorten the maturity or decrease the monthly payment. If you build or transform a building, your bank makes the funds available as the work progresses. The interest payable is due only on the used portion of the loan and you avoid paying unnecessary interest on the unused funds.
The main drawback of the variable rate is his lack of visibility. You will not be able to predict in advance what you will pay for monthly payments in the coming years, or for how long.
In general, the variable rate is the best choice when interest rates are high and if flexibility is the most important criterion for you, either because you are self-employed and income is not constant, or because your financial and professional situation will evolve in the future.
And why not the fixed rate revisable?
If you have trouble making your choice, you have a third way: the fixed fixed rate. You keep a fixed rate for a specified period (usually 3, 5 or 10 years) and at the end of each period you decide to either continue with a fixed rate or change to a variable rate until the end of the next period and so on.
The advantage of this rate is that it combines the security of the fixed rate and the flexibility of the variable rate. You play the protection during the first periods of your contract where the interest due is higher and at the end of each period you take advantage of any market opportunities: or you opt for a variable rate if interest rates tend to increase at the end of the term, or you maintain the fixed rate if the opposite occurs. In addition, at the end of each period, you may change the rate type and / or prepay your credit (in whole or in part) at no additional charge.
However, keep in mind that the adjustable fixed rate may be higher or lower than the floating rate and the fixed rate depending on the period chosen and that there is still a notion of risk. The type of rate chosen at the end of each renewal period will be the one in effect at the time of maturity. There is no guarantee that in the coming years, rates, whether fixed or variable, will remain as low as they are today.
A tip: before making your decision, take the time for reflection and do not hesitate to talk to your banker.
For more information, please visit www.ing.lu/immo or visit us at the branch.
Find new expert advice
Every Tuesday.