Are you going to take out a mortgage soon, or is the interest-rate period of your mortgage about to expire? Then you have the choice: do I set my mortgage interest rate, do I opt for a variable mortgage interest rate, or for a combination of both? In this article you can read what fixed and variable interest is and what the advantages and disadvantages are.
Difference fixed and variable interest
The variable mortgage interest rate is linked to the market interest rate. When you opt for a variable mortgage interest rate, you take more risk. Namely, if the market interest rate rises, you also pay more interest. But the opposite also applies: if the market interest rate falls, you pay less mortgage interest.
Mortgage lenders often add a surcharge on top of the market interest rate, in order to cover the costs. They are free to change this storage during the term. The variable mortgage interest rate may therefore develop differently from the market interest rate.
A mortgage with a fixed interest rate offers more security. You pay the same mortgage interest during a certain period (for example 5, 10, 20 or 30 years). So you know in advance exactly where you stand. But you pay more for this security: the fixed mortgage interest rate is higher than the variable.
Mortgage interest variable or fixed?
The choice of a fixed or variable interest rate depends on a number of factors. First of all, the expectation of mortgage interest plays a role. Do you think the mortgage interest will rise in the coming years? Then it is wise to fix the interest now. Conversely, if you expect the mortgage interest rate to fall, a variable mortgage interest rate is advantageous.
At present, mortgage rates are at a very low level, even the lowest in five years. Experts expect that interest rates will remain at a stable low level in the coming period. It is difficult to predict what the mortgage interest rate will do in the long term.
In addition to the expectations about the mortgage interest, your personal situation is also important. Can you afford to take a little more risk, or would you rather go for certainty? If you opt for a variable interest rate, you must be able to absorb any fluctuations in the market interest rate.
Mortgage fixed or variable? – Advantages and disadvantages
Benefits of a fixed mortgage interest compared to a variable interest:
- It provides certainty. You know exactly what your monthly payments are during the fixed-rate period.
- Not sensitive to interest rate rises. If market interest rates rise, this will not affect your mortgage interest.
Disadvantages fixed mortgage interest compared to variable interest:
- Costs: the fixed mortgage interest is higher than the variable interest. The longer you fix the interest, the more you pay.
- No benefit from interest rate drop. If market interest rates fall, you will not benefit from this. Because you have a fixed mortgage interest rate, your monthly payments will remain the same.