What is the variable rate mortgage: pros and consOn December 22, 2019 by Ana Funchess
The variable rate mortgage is a loan whose interest rate does not remain static but, over time, can fluctuate. What do these oscillations depend on? From the performance of the reference financial index. If the index rises the rate will vary upwards. If it goes down it will be touched down.
But what are the consequences of changing the mortgage rate? For better or for worse, the mortgage payment will be affected by these changes. A rising interest rate will force the borrower to pay more than the previous status quo monthly. On the contrary, the decrease in the rate will be welcomed because it will entail a lower installment.
Euribor variable rate mortgage
Euribor is the benchmark for variable mortgages. It indicates the average interest rate of the financial transactions that take place between the most important dollarspean banks, with the dollars currency. It is often used as a base rate for calculating variable interest.
It can have a monthly, quarterly or half-yearly maturity, depending on the installment chosen by the borrower. Remember, however, that the spread must also be added to the Euribor. We refer, in fact, to the surcharge that the bank applies on the reference rate.
Better fixed or variable rate? Here’s what you should do
This is a question that is asked by all those interested in such a loan. Better a fixed or variable mortgage ? Which of the two is more convenient ? Clearly, there is no clear answer to this question. Much, if not all, depends on the income situation of the borrower. If you have a fairly high income and are accustomed to risk, perhaps you can even venture the variable rate hypothesis. In fact, in this case, if the rates go up a lot, you could still be able to pay the installments.
The fixed rate , on the other hand, is a welcome solution for those who absolutely do not want to know how to risk. In this case, a constant commitment is made throughout the financing and that, therefore, the customer should be able to support without particular problems.
If all this is not enough, maybe you can take a look at the market forecasts . If a rate drop is expected, it may be more convenient to opt for a variable rate mortgage.
In general, however, the first installments of a variable rate mortgage tend to be quite low. This means that in the medium to long term, a variable mortgage could be more convenient than the fixed rate. However, it is always advisable to speak on the conditional and remain in the field of hypotheses because, as mentioned above, there are external factors that can significantly influence the performance of rates.
Experts, however, recommend the fixed rate first of all when the rate hovers on percentages lower than 4% . Not only. Even when the mortgage provides for a not very high amount and duration and when the installment approaches that of the variable mortgage it is advisable to opt for fixed taxation.
The variable rate is indicated as the perfect solution when the fixed rate exceeds or approaches 5% . In fact, the variable rate usually remains lower than 5%
Variable rate today: here is the trend
The trend of the floating rate today remains at fairly low values. That’s why in recent months the variable has come back into vogue again. The fixed rate remains the preferred solution by the Italians but many have started to focus on the variable mortgage.
To be always updated on the trend of variable rates and to know the market forecasts, you can connect to the official Euribor website .