Taking a mortgage is something you should not do without first thinking through everything carefully as it is about large sums. One of the aspects that you should consider is how you want to do with the interest rate.
You have two different main options to choose from and it is fixed interest rate and variable interest rate . What you choose is up to yourself as both types have advantages and disadvantages. Which of these we shall try to find out here.
Fixed interest rate
In short, fixed interest rates mean that you unlock the interest rate level for a specific period of time. The interest rate can be fixed for 1 – 10 years and during this period your interest rate will not change regardless of the interest rates otherwise changed. This applies both if interest rates go up or down. The most common thing is that the interest rate on the various fixed interest rates is higher than that for variable interest rates.
The big advantage of fixed / fixed interest rates is that you always know exactly how much money you need to have available each month to handle your payments, because you have a fixed interest cost.
This allows you to feel confident about the economic development during this period. This is especially good for those who do not have such large margins in your finances, since you can easily know if you can afford to take out a mortgage or not (and how big this loan can be).
In times when interest rates are very low
You can also have an advantage if you think you know that interest rates are on the rise in the future. If you can fix your mortgage interest rate at the right time you can get a low fixed interest rate and when the interest rate then rises after you have tied up your loan then you are sitting there with an interest rate lower than what you would have had if you had chosen a variable interest rate . However, it should be remembered that it is not easy to succeed with such a maneuver if you are not familiar with interest rate policy and can come across a good interest rate.
Then it should also be said that the disadvantage of fixed interest rates is that it will normally be more expensive than variable interest rates. From a historical perspective, this has been the case (with some exceptions as it pays to raise its interest rate). You usually have to pay a little extra to have the collateral that comes with a fixed interest rate, which is why the total variable interest rate usually becomes cheaper.
Why is it better then to have a fixed interest rate if you have small margins in your finances, if it is usually cheaper with variable interest rates? The answer to that is that with small margins, it also manages interest rate changes worse. The variable interest rate can be changed and if it is raised a bit, it is possible that you suddenly cannot afford to pay anymore. There is quite a difference between an interest rate of 3% and an interest rate of 4%. This means an increase of about 33% of your interest costs each month.
Variable interest rate
If you choose a variable interest rate, your interest rates will change every three months (then it is possible that the interest rate will not change, but the possibility exists). You often call the variable interest rate a three-month rate, which is actually closer to the truth. Because you actually commit yourself three months at a time. As your interest rate changes as the interest rate market develops, it may increase or decrease quite a lot depending on what is happening in the country.
The biggest advantage of choosing a variable interest rate is that you will probably save money overall. Usually it is cheaper in the short term with a variable interest rate, although it moves up and down a bit. This is because you usually set the level of fixed interest rates a little higher. How high the fixed interest rate is depends in part on what the banks predict about the future of the interest rate plus a small imposition on the extra security that fixed interest rates entail.