Fixed or variable mortgage? It is the big question for anyone who needs a bank loan to buy their home. The answer is never easy and will always depend on a series of conditions: repayment term, present and future income or the level of savings of the applicant.
But after a year of health and economic crisis caused by the Covid-19 pandemic, the decision becomes more difficult. We explain the advantages and disadvantages of both at this time and according to the current general banking conditions.
Increases the percentage of fixed-rate mortgages contracted
Until a few years ago, buyers opted to take out variable-rate loans. But this trend has changed since the Euribor has been falling more and more and all forecasts indicate that the European Central Bank will maintain the negative values of this for at least two more years.
This is very good news for the beneficiaries of variable mortgages, but not for the banks. These obtain greater benefits when mortgage loans are fixed rate (they are constant for a more or less long period) and also a more stable client portfolio.
According to data from the National Institute of Statistics (INE), last year the percentage of fixed-rate mortgages was 48.4%. The figure is remarkable, especially if we take into account that in 2012 of all the real estate loans that were requested, only 2% were at a fixed rate.
Everything indicates that this year the percentage will increase again. The main banks are offering increasingly attractive conditions for contracting this type of loans. For some months now, for example, they have been lowering their fixed interest rates. Some, such as Bankinter or Targobank, offered loans at the beginning of 2021 with an interest of 1.60% and 1.59% for 30 years. Currently they have lowered them to 1.45% and 1.54% respectively.
What are the advantages of fixed-rate mortgages?
The stability of quotas. They are the same throughout the life of the loan.
Interest rates are getting lower, especially for those mortgages whose repayment terms are shorter.
They are suitable for buyers whose profile is more conservative since there is no risk that the interest rate will rise even if the value of the Euribor increases.
Variable-rate mortgages are expensive
The amount of the monthly installments of variable mortgages varies according to the Euribor. The interest rate that is applied is the sum of the value of this plus a fixed spread.
We have already seen that the Euribor has maintained negative values for some time and it is most likely to remain so for a few more years. For people who have contracted variable mortgages this is very good news since they will see how their monthly installments go down more and more. “How much would an average mortgage of 150,000 euros be cheaper with a term of 25 years and an interest of Euribor plus 1%? With an annual review, their fees would fall by about 17 euros per month, which would mean a saving of almost 200 euros for next year. And if the review were semiannual, the monthly payments would be reduced by almost 15 euros per month, so the savings would be about 90 euros for the next semester, “they explain from elEconomista.es.
Given the benefits that banks have with fixed mortgages, it is normal for variable-rate loans to buy a home to become more expensive. With the former, their income will be higher, especially now that the Euribor continues to mark historic falls.
What are the advantages of these mortgages?
Repayment terms are usually longer, so they are usually perfect for younger people who, in addition, do not have much savings.
They tend to have fewer commissions and also fewer linked products.
By depending on the Euribor it is possible that, in the medium or short term, the monthly installments are reduced even more.