Fixed rate and floating rate mortgages

Fixed rate and floating rate mortgages

 

Small loans fast 5 thousand euros: how to get a fast loan of 5 thousand euros in cash

Small loans fast 5 thousand euros: how to get a fast loan of 5 thousand euros in cash

When you need money to buy a house, to start a business or for any other reason, you can apply for a mortgage. Obviously, to be able to obtain money to be repaid in installments, it is necessary to demonstrate a certain economic soundness and sufficient guarantees, for example with a mortgage or with the presence of a guarantor. The money obtained must be returned with interest, but here comes a fundamental decision: fixed rate or variable rate? We will see later that today this distinction is less important than in the past because it is possible to renegotiate the conditions of the loan, or opt for a subrogation, but here is a good thing to consider.

personal loan

When the fixed rate is convenient

When the fixed rate is convenient

The fixed rate is calculated by referring to the Eurirs index, which in recent years has never been very low because it is based on the very low cost of money and is influenced by quantitative easing, a measure that puts money in circulation and therefore favors low interest rates.

The fixed rate has several advantages , ie the debtor from the beginning knows what the final sum he will have to pay for the borrowed money will be. Each installment will have the same amount and therefore there are no surprises, for those used to programming everything for sure is a welcome solution. The amount of the fixed rate, not being tied to the market trend, remains unchanged even if the cost of money should increase, but it remains the same even if not, ie if the cost of money falls.

At this point it must be emphasized that the fixed interest rate that the debtor pays does not correspond exactly to the cost of money, but to this plus the spread, ie a profit margin for the banks. This implies that although today the cost of money is very low, the fixed rate mortgage does not reflect this state of affairs altogether. It remains to be said that usually the spread does not exceed 2%, in this way it is possible today to obtain money in the mortgage with an interest rate that does not exceed 3% or that slightly exceeds it.

At the interest rate must however be added the costs of preliminary investigation and installment installment, many banks offer solutions with reduced or no cost for this is good to ask for more quotes. Generally with a low cost of money the fixed rate mortgage is recommended, especially when the mortgage amortization plan is long enough , for example 20 years because the interest rate is unlikely to remain low even in the future.

Does the variable rate mortgage agree?

Does the variable rate mortgage agree?

The variable rate mortgage is characterized by following the market trend, which means that with a very low cost of money today it is possible to obtain financing and start paying a very small payment, smaller than the fixed rate. The amount, however, will not remain fixed over time , but will most likely tend to increase because it is possible to hypothesize that such low interest rates tend not to remain so for very long periods. This means that in a few years the installment could be much higher than that which would be with the fixed rate.

Also with regard to the variable rate, the spread must be taken into account (which remains fixed and added to the Euribor index, ie the reference index for the variable rate), the costs of the preliminary investigation and the collection costs. It must be emphasized that it is possible to protect yourself from an excessively high rate with the bargaining from the beginning of a maximum cap (CAP) , in this case a contract is stipulated in which if the Euribor index decreases the amount of the installment decreases, if exceeds the limit set, remains blocked at the chosen rate. It must be said that usually this type of contract provides for a higher spread. Another possibility is to start with a variable rate, for example 5 years and continue to pay the installments with a fixed rate. However, these variations depend on the bank to which it is addressed and the related proposals.

Surrogate of the mortgage or renegotiation of the conditions?

In the past few years many of those who had contracted a loan with a variable rate have found themselves with interest rates soared to the stars and therefore difficulty in paying the installments, for these were identified solutions.

The first is the subrogation of the mortgage. Law 40 of 2007, also known as the Bersani law, provides for the possibility of transferring the loan from one bank to another without paying additional charges . This is a measure to negotiate new favorable conditions. The bank that initially granted the loan can not refuse this transfer.

An alternative to subrogation is renegotiation; this differs from the subrogation because it happens with the same bank and there is not a new contract, but only a modification of the conditions initially envisaged.