Fixed or variable interest rates?
How do you know if you should have fixed interest rates on your mortgage or floating rate? Here you will find information that can be useful now that the Goodbank has announced that the interest rate will probably be raised towards the end of 2018.
Fixed interest rate on the mortgage
You can fix your loan rate at a fixed level for a certain period of time. Common bonding times are 1, 2, 3, 4, 5 or 10 years. Once this time has expired, you can decide again if you want fixed or variable interest rates.
The advantage of a fixed interest rate is that you pay the same amount during the entire term, even if the policy rate changes. It can be valuable if you are worried about being able to afford your accommodation if the interest rate goes up. Calculations made by SVT show that a third in the suburb of Stockholm, with a loan-to-value ratio of 70%, can receive twice as much monthly costs if the interest rate rises from 1.5 to 4.5%.
The Goodbank has flagged that interest rates may be raised. It can also be affected by political decisions, financial crises, currency turmoil or events in our world.
Mortgages with floating interest rates?
Historically, variable interest rates have been most advantageous. It is usually lower than the corresponding fixed interest rate, as it can change quickly.
This is the option for those who believe in continued low interest rates. At the same time, it requires that you pay attention to what is happening in the financial market, as this may affect your mortgage costs.
Therefore, it is good if you have interest and good financial margins if you choose mobile.
As a rule, a variable interest rate in reality is also fixed but for a shorter period, usually three months. That is, the interest rate is adjusted to the interest rate situation, but only once a quarter.
Spread your interest rate risk
One way to spread its interest rate risk is to have most of the loan with a fixed interest rate and a smaller part with a floating rate. You can also divide your mortgage into parts with different long maturity periods to make a tied loan more flexible. The disadvantage of this is that it can be more difficult to move or change a loan.
Also, keep in mind that the interest discount that is often offered for new loans usually only lasts for one year.
Do not commit your loan for longer than you plan to stay. Negotiating a secured loan in advance is complicated and expensive.
It can also be good to set up a savings that corresponds to a higher interest rate level. This way, you create an economic buffer while getting used to a higher interest rate level.
Finally, it is always worthwhile to compare different banks’ offers .