Fixed, variables or mixed mortgage: How to choose?

Choosing between a fixed, variable or mixed mortgage is one of the main headaches when looking for financing for the purchase of a property.

The memory of interest rate hikes during the economic crisis is still present in the minds of clients, many of whom want to avoid such a scenario at all costs.

On the other hand, the uncertainty about the future evolution, currently in negative territory, as well as the different contractual conditions established by the banks, contribute to make the decision more difficult.

This guide is designed to help you understand the differences between a fixed rate mortgage, variable or mixed, and choose with criteria the modality that best suits your needs and preferences.

Differences between fixed, variable and mixed mortgages

We will analyse the main advantages and disadvantages of the different types of mortgage. That way, it will be easier for you to compare the relevant aspects.

Advantages and disadvantages of variable mortgages

Variable rate mortgages account for 63% of mortgage loans signed in Spain, according to INE data.

Traditionally, it has been the option most chosen by customers. These are its main advantages:

  • Longer repayment terms

As a general rule, these mortgages are usually offered with repayment terms of up to 30 years. In addition, exceptionally, and as long as the client does not exceed 70 years before the contract expires, some entities grant variable rate mortgages of up to 40 years.

However, it should be borne in mind that the longer the repayment term, the longer you will continue to pay interest, which will mean that the total cost of your mortgage will also be higher.

  • Lower monthly payment, at least in the short term

The fact that at historic lows and the spreads established by banks are quite low means that the monthly instalments are lower than those of fixed-rate mortgages.

Variable rate mortgages also have some drawbacks:

  • Variability of quotas

A disadvantage of these mortgages is the uncertainty of the amount of the instalments, which depends on the reference index.

After the sharp fall of this index in recent years, some sources indicate that a progressive recovery of most likely to be experienced.

  • Rising prices in the long term

As noted a few paragraphs ago, extending repayment terms also increases the final cost of borrowing. For this reason, it is advisable to adjust the amount of the instalments, reducing the term of the mortgage to a reasonable limit.

Advantages and disadvantages of fixed mortgages

According to the data provided by the INE, fixed-interest mortgages now have a 37% market share.

The advantages of this type of loan are as follows:

  • Stable quotas

This mortgage loan is characterized by the application of a fixed interest rate, so the monthly payment will always be the same.

From the beginning, and throughout the life of the contract, you will always pay the same amount month by month. Without a doubt, this provides great peace of mind for the future.

  • Better financial management

Knowing the exact amount of the instalments makes it much easier to forecast expenses and therefore better manage your personal finances.

  • Competitive conditions

Fixed mortgage interest rates are becoming more and more competitive, and there are even entities that already extend maximum repayment terms to 30 years. These measures are considerably increasing the competitiveness of this type of mortgage.

With regard to the drawbacks of fixed-rate mortgages, the following should be mentioned:

  • Higher quotas, at least in the short term

These mortgages tend to have somewhat shorter repayment terms. In addition, the fixed interest rates offered by the industry are somewhat higher than the rate we would pay with a variable rate mortgage. The combination of these two elements makes the monthly payments somewhat higher.

  • Early cancellation compensation

Sometimes, the contracts of these mortgages include a commission to protect themselves from the possible financial loss that may result from the early cancellation of the mortgage by the client.

Advantages and disadvantages of mixed mortgages

As the name suggests, mixed mortgages are characterized by combining an initial period with a fixed rate, followed by a period governed by variable interest.

Main advantages of mixed mortgages are:

  • Decision-making capacity of the fixed-interest term

As a general rule, the customer can decide the period during which he will be paying a fixed interest. Banks offer terms of 5, 10, 15 and even 20 years. However, the latter would de facto mean taking out a fixed-interest mortgage for most of the life of the contract.

  • Competitive interest rates

In order to encourage these mortgages, banks are offering a combination of fixed interest rates and highly competitive variable interest spreads.

The main disadvantage of mixed mortgages is that the fixed interest period is always the initial one, so it is not possible to benefit from the current situation.

Which is more interesting: fixed, variable or mixed mortgage?

Now that you have a clear understanding of the differences between the different types of mortgages, it’s time to decide which one is best for you. The choice depends mainly on your financial situation, as well as your preferences regarding the payment of your mortgage loan.

Doyle L. Scott

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