- The main advantage of fixed-rate mortgages is security.
- The fixed-rate mortgage is more expensive than the variable with the current Euribor.
- Another drawback of the type of fixed comes when changing mortgage.
Fixed-rate mortgages offered by financial institutions have a number of advantages and disadvantages with respect to variable-rate mortgages that we must know and calibrate before making a decision.
The advantage of fixed-rate mortgage: security
The main advantage of fixed rate mortgage loans is security- Votelordi. We know the fixed installment that we will pay during the 20 or 30 years (current maximum term of the fixed mortgages of the market at present) of life of the mortgage.
Take the conditions of the fixed-rate mortgage with lower interest, which offers 5% to 20 years, and suppose we need 200,000 euros. The monthly fixed fee that we will pay for the next 20 years will be 1,320 euros. Or seen otherwise, we will return at the end 316,800 euros (116,800 euros in interest, without updating based on the CPI).
Doing the same with the variable mortgage with the lower interest rate, at Euribor + 0.30 to 30 years, what we will end up paying is impossible to calculate, because nobody knows the evolution of the Euribor to 30 years. If it were always kept above 2%, we would pay 770 euros monthly, returning 277,200 euros at the end of the period. If, on the other hand, the Euribor was at a maximum of 5%, the fee would be 1,110 euros and we would pay a total of 399,600 euros; 122,400 euros more for the increase in Euribor, a real risk to take into account, right?
Disadvantages of the fixed type
Some of them have already been formulated in the previous example: we would currently pay a fee of 1,320 euros if we hire a fixed mortgage. On the other hand, with the best variable rate mortgage (current Euribor +0.30 to 30 years), a fee of 723 euros results:
Fixed rate mortgages are more expensive than variable rate mortgages with the current Euribor, in addition to having shorter repayment terms. The fees are higher and the incomes that require us for their concession, therefore, higher. To get the fixed mortgage of the example, the monthly net salary of the mortgages should be around 3,770 euros!
Another financial problem that the fixed-rate mortgage loan has is when it comes to changing mortgages. Let’s imagine that the Euribor takes 4 years below 2% and we decided to stop paying 5% to subrogate to a variable mortgage.
If we have not been well informed of the commissions we signed at the time of going to the notary, we can take an unpleasant surprise:
- If the mortgage was signed before December 9, 2007, the maximum subrogation fee is 2.5 %.
- If the mortgage at a fixed rate to acquire our home is after 9/12/2007, the subrogation fee is 0 %, although the law allows another commission to be agreed, that of compensation for interest rate risk ; this commission is paid if with the subrogation the bank loses money (that is, normally it is always paid). The most common is that a fixed percentage is agreed upon in the contract, applicable to the outstanding capital at the time of cancellation or subrogation. This percentage is around 2.5 %. Same dog with a different collar.
If the reader carefully reviews what is written, you will see that in most cases you have signed when you have signed, no one will be able to pay you a minimum commission of 2.5 %. In our example, if the subrogation is raised at 4 years, the outstanding debt will be 174,204 euros. And the commission that we will have to pay to the bank will not be lower than 4,355 euros!
Fixed rate mortgages are the forgotten ones of our financial system. They represent a risk for banks because if the rates rise above their forecasts they would lose money, so their financial conditions tend to be dissuasive. If we add that the cost of changing banks has not been reduced, it is normal that more than 90% of the mortgages that are hired are at a variable rate.