You’ve decided to buy a house and you know exactly what kind of property you’re looking for and which area you like best. But now comes one of the hardest parts of the process... The mortgage. To find the best mortgage for your needs, you’ll have to visit several banks and analyse what they have to offer. You probably know that there are several types of mortgage, but which one should you choose? A fixed-rate mortgage or a variable mortgage? We’ll explain some of the main differences between the two so you can be sure to make the right decision.
In 2021, the mortgage landscape is likely to change due to the economic situation. It’s a great time to revive your plans to buy that house you’ve got your eye on after putting them to one side during the pandemic. So... what should you choose?
A mortgage is a commitment that will follow you for a lengthy period of time. You’ll be tied to monthly repayments for many years in exchange for your home or property investment. One of the aspects to bear in mind when selecting a mortgage is whether to go for a fixed or variable interest rate. Those of you buying for the first time are probably a bit confused about the differences between the two. Let’s break it down:
A mortgage is subject to the Euribor rate (the Euribor is the reference for most mortgages in Spain). This is the basis for selecting a fixed-rate or variable mortgage.
A fixed-rate mortgage has the same interest rate throughout its life. It will not change if the Euribor goes up or down. You’ll make the same monthly repayment from start to finish and the total cost of the mortgage will remain the same.
There will be no change at all to your total payment and it won't matter to you if the markets rise or fall.
The main characteristic of fixed-rate mortgages is that the repayment term can never exceed 30 years (they are shorter-term loans than variable mortgages) but they also offer greater peace of mind because you know that you’ll always be paying the same amount. That means you can plan your outgoings better, although it also means you’ll miss out on any drops in interest rates.
If you think you might pay off your mortgage before the end of the repayment term or in a short period of time, we recommend a variable mortgage rather than a fixed-rate mortgage that will be more expensive to repay early.
On the other hand, anyone with a variable rate mortgage will see their monthly repayments and total mortgage cost vary depending on the Euribor and changing interest rates.
Variable mortgages are reviewed every six months and monthly payments may increase or decrease on the basis of that review. Changes will be driven by reference rates such as Euribor, and personal income taxes on financial institutions, savings banks and public debt, among other parameters.
Another feature of these mortgages is that the interest rate tends to be lower and the repayment terms are longer, extending to 40 years or beyond.
With this information under your belt, you're now fully equipped to choose the right mortgage for you. Now you're one step closer to your perfect home.