The first question that a client usually asks me when he enters my office to advise me on mortgage matters is whether it is more convenient to hire a fixed or variable rate mortgage. In this article we will see some factors to consider when deciding whether to request a fixed or variable rate mortgage and how we currently value the fixed rate mortgage market in Spain.
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Fixed rate to variable rate mortgage?
What factors should we consider to decide on a fixed rate or variable interest mortgage?
What must be clear is that the answer depends both on the mortgage offer of the moment and on the economic situation and “investor” profile of the client.
Our CEO and associate professor of Financial Economics at the UIB explain it in the following radio cut, from an interview on Spanish National Radio on April 30, 2019:
Fixed or variable mortgage loan we must analyze the following parameters
- The profile of the borrowers : the economic situation, family and risk profile in terms of debt are key when recommending a fixed or indexed mortgage. A self-employed person with a financial culture and high income can be a good candidate for variable indebtedness, if he knows how to save in times of low Euribor in order to pay early and face high monthly payments when interest rises. An official accustomed to living up to date would be a better candidate for a fixed rate mortgage, for example.
- The conditions of fixed rate mortgages and variable mortgages at all times. This 2019 is a good year in terms of low fixed interest, but you must always study the cost of the bonds, which can end up making the mortgage loan more expensive.
- The evolution of future interests , which will determine that fixed indebtedness ends up being more expensive or cheaper than having contracted a variable rate mortgage.
Are fixed-rate mortgages cheap in Spain in 2019?
In 2018, fixed-rate mortgages were granted at nominal rates even below 2%. In 2019, the rates are still very competitive, although somewhat more expensive: they are around 3% nominal. Thus, the latest data from the INE, of the mortgages recorded in February 2019, yield the following data regarding housing mortgages:
Of the total registered housing mortgages, 41.8% were fixed rate mortgage loans and 58.2% variable interest mortgages . The average interest rate of fixed-rate mortgages was 3.05% and the interest of variable mortgages of 2.37% (let’s not forget that the final cost in this case is only known at the end, as the Euribor has evolved or reference used).
31,018 mortgages on housing were registered in February 2019, which represented an annual growth of 9.2%. The average amount of these mortgages was 123,911 euros.
We can conclude that 2019 is a good year for fixed-rate mortgages in Spain, although all the factors mentioned must always be analyzed well before making a decision.