Mortgage, fixed or variable? The million dollar question remains as relevant as ever. The answer is as easy as it is impossible to apply: always choose the cheapest option. But since we do not have a crystal ball, choosing between the risk of paying more (or less) or having the certainty of knowing what our cost is every month depends on many more factors, ranging from personal preferences to the very nature of the mortgage. We explain it.
The one who does not want risks
If you are one of the cautious ones, who like to have controlled your expenses in the most exact way possible, the fixed mortgage it will be your ideal loan. Whatever the duration of the loan, you will know every month what you are going to pay and with this you will be able to adjust the rest of your budget and better control the borrowing possibilities.
Although it is true that the changes in variable mortgages when renewing rates have been small in recent years, we do have a history. At the beginning of the financial crisis, there were very important increases that took the Euribor from 2% to 5% in just a couple of years. With the fixed mortgage we are protected against this risk.
Mixed mortgages allow us to control risk in the early years, but precisely in those with greater cost certainty, adding risk in the sections with greater uncertainty. Therefore, they are recommended exclusively to those who for other financial reasons, such as having other debts, seek that stability in the first years.
Therefore, the fixed mortgage gives us security, but at the moment, in the vast majority of cases it means paying more. Much more? This is where two variables come into play.
Here, the percentage difference between the two mortgages does not change, but the impact does. It is clear that, the higher the amount, the interest cost will be higher and more than proportional. For example, in a mortgage of 100,000 euros for 15 years and an interest rate of 2%, 16,155.80 euros of interest would be paid. If this amount rises by just 10,000 euros, the interest goes up to 17,414.80 euros, 1,259 euros more and if it were 120,000 euros they rise to 18,997.80 euros, that is, 2,842 euros more than the 100,000.
For all these reasons, whoever chooses a fixed mortgage, if it is a small amount, will currently have a difference against them that is less than those who have a mortgage of a larger amount.
This connects us to another important point. Where are the mortgages lower? As a general rule, in large cities such as Madrid and Barcelona, mortgages are more important, so paying a fixed mortgage there is more expensive at this time. The opposite occurs in small cities and rural areas, where the average mortgage is lower and, therefore, the current overcharge is lower.
The other variable is the term and with this the age of the mortgaged also comes into play. Expectations of type of interest, the longer the term, so are the possibilities of variation in interest rates, up or down.
The term is often determined by the amount. Again, in large cities and other areas where the price of housing is high, there is a trend towards very long-term mortgages, in order to achieve lower and more accessible installments. For this reason, the combination of long terms and high amounts results in the most expensive mortgages and in which seeking savings is more important. In this sense, it would earn “points” to contract variable mortgages for that saving, which is more important precisely in the first years of the mortgage, when more expenses are usually assumed.
But how long will it be like this? Many financial institution research services and even those responsible for them have indicated that they expect negative interest rates to continue for a decade or more. This means that in a mortgage with Euribor + 0.99%, which is the most marketed rate, you will pay less than a 1% fixed mortgage, which is already a very low fixed rate.
This is the great debate Is current savings sufficient on a 25 or 30 year product? No one can say, but doing certain practices, such as saving that money for a possible rise or allocating it to partially amortize the mortgage, will help reduce risks.