Is a mortgage with fixed or variable interest right for me?
When a mortgage is granted, you are committing to repay the money that the bank has lent you to buy your house along with interest over several years . Those interests that you are going to pay within the monthly installment can be fixed, that is, you will always pay the same percentage of the purchase price of the home, or variable and that change from time to time depending on the Euribor normally. Depending on your circumstances and the risk you want to assume , you should choose one type of mortgage or another.
What is a fixed rate mortgage and how does it work?
In a fixed rate mortgage you will always pay the same monthly installment , it will not depend on the fluctuations of the financial market. If the interest rate that the bank decides to apply to you is, for example, 1.5%, this will remain so until you finish paying the mortgage.
It is usually the option chosen by those people who want the peace of mind of knowing that they will always pay the same , although it may be cheaper in the variable, they do not have that guarantee. If you know that you can pay that amount every month for your work, it is the one that will give you the least complications.
What is a variable rate mortgage and how does it work?
You can also choose a variable rate mortgage. This means that the interest you pay on the price of the house will change based on a reference that is normally the Euribor .
The most common is that the bank updates the interest rate every six months with the latest Euribor value, which means that you will pay the same for six months and then the interest will be recalculated. It may go up or it may go down .
When to choose a fixed or variable rate mortgage
Choosing one or the other option will depend on whether you want to take the risk of not knowing the long-term interest rate or not. Normally, the variable rate is usually lower than the fixed rate, but there is no guarantee.
There is a third formula that is the mixed one, in which the banks offer you to have a fixed interest rate the first years , when the mortgage payment is higher and it may be more risky to assume a changing rate, and in the following years have a variable type . This can be a very good option for those who are not sure if one or the other is right for them.