What to do with mortgage fixation when interest rates rise
While until recently banks have overtaken discounted mortgages, it will now bring former interest rates below 0.5 percent as full nonsense. Since mid-February, all banks have gradually raised interest rates. So what to do with the ending fixation and how to deal with rising interest rates?
According to statistics, the average interest rate for 2021 on new loans with a fixation period of 1 to 5 years was 0.97%. At present, only one bank offers interest below one percent with a 3-year fixation. 5-year fixations are even more expensive, they cost almost 2% of standard, and choosing a shorter than 3-year fixation is like running your head against a wall.
Thus, an initial wave of rising credit prices swept across the market. Surprisingly, this increase came before the increase in central interest rates. This means that banks still borrow at 0%. The central bank has not yet announced the date for raising interest rates or even stopped the quantitative easing of the so-called pushing money. This is currently significantly lower than during the fight against the coronary crisis. Instead of hundreds of billions, he is only printing tens of billions of euros.
🖋What does this mean for ordinary people?
No one can predict with certainty whether commercial interest rates will rise at the same rate or the increase will slow down. What is almost certain, however, is that interest rates will not fall in the near future. This is the end of the period of low-interest rates. In practice, this means an increase in monthly payments of at least a few tens of euros and less availability of new loans. Of course, if the contractual conditions are observed, the bank cannot increase your interest during the fixation period, but at the end of the period, it will be the rule in the following period.
You should be especially careful if you are in any of the following situations:
It’s a pity you didn’t deal with it a few months earlier, but you don’t have to cry over spilled milk. The important thing is to definitely resolve it now. Across the market, you will find many fixing and interest options to choose from.
Currently, one of the most discussed topics is the length of fixation. Here you need to realize what a short and a long fixation brings you. The price you pay for a longer fixation in the form of higher interest is the price for the certainty that your interest will not increase if interest rates continue to rise.
This coin also has two sides, and in order for it to be advantageous for you, the average interest rate during the fixation period would have to get above your interest rate. With a shorter interest rate fixation, you will soon have the opportunity to refinance again for free, but if interest rates do not start falling again by then, this advantage will become a huge minus and probably another cut over your budget.
So if you have a mortgage of 100,000 euros and you decide between 1.1% interest for 3 years or 2% interest for 10 years, your security price will be approximately 43 euros per month. That is 516 euros per year, ie 5,160 euros for the entire length of the fixation. If you are willing to pay such a price in addition, it is okay, if not, you will have to look for another alternative.
✅ I still have a few years until the end of the fixation
If you have more than three years left and at the same time have a lower interest rate than the banks currently offer, you can probably stay calm.
However, if you do not meet either of these two conditions, I would recommend that you have a recalculation compared to your current bids. If not right away, it can save you a few tens of euros a month in the future.
✅ I will probably take out a mortgage in the near future
If you are planning to take out a new mortgage, I would recommend that you speed up this process as much as possible. I don’t mean that you have to run to the first bank and take whatever they offer you, but the difference between the mortgage now and half a year should not surprise you on a monthly payment. You also have the same fixation dilemma as in the first case.
📌So what should I do?
Everyone knew that the increase would come one day, but no one expected it to be so early and forceful. Winter thus said goodbye to the financial market with the last avalanche in February in the form of an express increase in interest rates.
However, you should not allow uncertainty and stress to drive you to a reckless or hasty decision. If you are unsure or just want to make sure you are making the right decision, or if you need help dealing with loan refinancing processes, do not hesitate to contact an expert.