Today anyone who takes a mortgage loan can do gold business. Given the current interest rate situation, many mortgage lenders prefer a fixed interest rate. However it can sometimes be cheaper to choose a variable interest rate.
Long-term interest rates are rising again. Between the start of the new year and 15 March, Belgium’s long-term interest rate has risen from -0.37 percent to -0.05 percent in ten years. The long-term interest rate is one of the most important factors that banks take into account when determining the mortgage interest rate.
A recent survey conducted by De Tised at major banks shows that there are no plans on the table to raise mortgage interest rates in the short term. In response to the financial news site, KBC economist Johann Van Gomel informed the financial news site that the bank could continue to raise long-term interest rates. He said that this increase will not be significant. Despite recent increases, historically, interest rates are still low. In the last five years, the average long-term interest rate (OLO ten years) was 0.38 percent.
Low mortgage rate
Therefore interest rates on mortgage loans are extremely low. According to the Immokaker Interest Barometer, the average interest rate over 20 years (ratio between 81 and 100 percent) is 1.44 percent. This is ten basis points lower than a year ago.
Due to low interest rates, many mortgage lenders lock in interest for the entire duration of the contract. This ensures that monthly payments do not change as rates increase. Nevertheless, it can sometimes be more beneficial to take a variable rate path.
With a variable interest rate, you agree that the bank will change the interest at a fixed time every three years. This can mean both increase and decrease. Lenders must follow several rules when they take out a mortgage loan with a variable interest rate.
To begin, the mortgage interest may double to a maximum during the term of the contract. For example, those receiving a variable interest rate of 0.8 percent would have to pay 1.6 percent in the worst case scenario. In addition, many banks incorporate a so-called ‘cap’ in their contracts. Such a cap determines the extent to which the interest rate can rise or fall with each revision. With the help of the Spaargids.be simulator, we calculated on the basis of a home loan with a term of 20 years for an amount of 200,000 euros.
If you take out a mortgage loan with a variable interest rate of 1 percent and 1 percentage point, you pay 845.48 euros per month in the best case. After twenty years, you have paid EUR 5,575.17 in interest. In the unchanged condition you pay 919.38 euros per month and in the worst case (where interest in the first amendment doubled earlier) 996.58 euros per month. In those two situations, twenty years later, you paid 20,651.76 and 36,400.51 euros in interest respectively.
Suppose you get a fixed interest rate of 1.44 percent, then you pay 955.11 euros a month. At the end of the journey, you have then paid 29,225.52 euros in interest.
low interest rates
Finally, a variable interest rate is usually lower than a fixed interest rate at the beginning of the contract. Lenders give you a ‘discount’, as it were, because in that way they share the risk of interest rate hikes with you. With a fixed interest rate, the lender loses potential additional income because it cannot adjust the rate in the event that the interest rate rises.
If the interest rate falls, the rate will be adjusted downward in the next revision. This is not the case with a home loan with a fixed interest. As such, if you want to refinance your home loan you will usually have to pay administration costs and reinvestment fees. Whoever does this in another bank will have to pay additional notary fees. Eventually, if you transfer it to a competitor, the mortgage loan must be re-registered.
Conclusion: When comparing home loans, it is always a good idea to request information about both the variable and the fixed interest rate. You can ask your advisor to simulate for both situations. This way you can completely guess which formula is right for you.