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Is it worth waiting for interest rates to go down to buy a house?

Since the beginning of the year Euribor rates are rising, in all deadlines. And with this rise, it is normal for mortgage payments to become more expensive. However, this does not mean that the best option is to enter into a lease agreement waiting for interest rates to fall again. After all, if you can get good financing conditions, buying a house may be the right solution for you.

But as it is not always easy to compare and negotiate proposals, count on the support of Doutor Finanças to negotiate the best conditions with the various banks, without any kind of charges for you.

Rising interest rates: What is the current scenario?

In terms of 6 and 12 months, rates are already at positive values, the same scenario is expected in the remaining periods.

However, even with the uncertainty of the future, the coming times are not alarming, especially if you have not yet taken out a home loan. In the end, interest rates will rise progressively, and not aggressively overnight.

If you take into account the perspective for the coming years of the capital market, know that the interest rate forecast in the Eurozone is 1.3%.

And what does this mean in practice for you? what would it take interest rates rise to very high valuesso that most of the rents were more affordable than mortgage payments.

Buy or rent a house?

After analyzing the weight that rising interest rates will have on home loans, reflect on the pros and cons of each option.

when you buy a house you are investing in your assets, contrary to what happens with a rented house. However, the acquisition of a property represents a great investment. And, as a rule, it is an investment of one, two, three or even four decades (if you are under 30).

The highest charge, as a rule, is the entrance to the house. But there are other significant charges. And here we are talking about fees, commissions and taxes.

In terms of bank commissions for your loan, count on about 1000 euros of charges. Already in taxes, the values ​​vary according to the price of the property, but not only. Therefore, it is best to simulate in advance how much you will pay stamp duty, IMT and later of IMI – Municipal Property Taxes.

In addition to your credit installment, you will still have to add mandatory insuranceproducts subscribed to lower their spread, the value of the condominiumand equate expenses with conservation works of the property.

In a rented house, the initial investment will be much lower. After all, you just have to pay one, two or three advance rents and the value of the security deposit. As a tenant, the charges for works, taxes, condominium are not his responsibility, but the landlord’s. However, he will be paying monthly for a property that will never be his.

In terms of stability, leasing is the most unstable option. Even if you have a lease, this does not prevent the landlord from do not renew the contract or anticipate its end. But if you buy a house and fulfill your obligations, you will always have your home guaranteed. The great uncertainty involves the valuation or devaluation of the property if one day you want to sell it.

Example of the difference between buying a house and renting

Imagine that, taking into account your monthly budget and your preferences, you are looking for a T2 on the outskirts of Lisbon, less than 10 minutes from public transport that takes you to the center of the capital.

Although the values ​​vary from area to area, you can find a wide list of used apartments, between 70 and 90 m2, with small renovations betweens 170 thousand and 190 thousand euros. If you want to rent a property with the same characteristics, the list of properties decreases, and the rent prices vary between 800 and 900 euros.

To get a sense of the difference between buying a house and renting, let’s look at an example. If you buy a T2 apartment for 180 thousand euros, you would have to give at least 18 thousand euros for the entrance to your house. Yup. don’t forget that banks do not finance 100% and will have to ensure through equity around 10 to 20% of the value of the property.

Ie, if you give 10% down18 thousand euros, would have a financing of 162 thousand euros. If the term of your home loan was 35 yearshaving a spread of 1.1% is TAN of 1.2% (projection with the 6-month Euribor at 0.1%), I would be paying a monthly installment 472.56 euros. Please note that mandatory housing credit insurance (life insurance for housing credit and multi-risk insurance) is added to this value.

This means that if Euribor rises to the following values, it would pay:

  • 545.00 (1% Euribor);
  • 632.53 (Euribor at 2%)
  • 727.04 (Euribor at 3%)
  • 827.95 (Euribor at 4%)
  • 934.61 (Euribor at 5%)

In conclusion, if the rent for a T2 is 800 euros, it would only pay to rent a house if the Euribor exceeds 3%.

Should I opt for a flat rate?

It all depends on your goals. If your goal is to pay the least amount possible, at least initially, a fee variable is for now the best option. But don’t forget that you will be subject to rising interest rates throughout the contract.

When the goal is create maximum stabilitya flat rate is the best option. This is because will always pay the same amount until the end of your home loan agreement. However, keep in mind that your credit installments will always be higher compared to a variable rate, at least at the beginning of the contract.

If you want to sell your property before the end of the contract, be aware that you will have to pay an early repayment fee. And the choice of your interest rate influences the amount you will pay. in a contract with variable rate the commission is 0.5% of the debt value. already in a contract with fixed rate, the commission amount rises to 2%.

In addition to these two options, you also have the option of choosing a mixed rate. That is, at the beginning of your contract you have a fixed rate for 5, 10 or 15 years. After this period, a variable rate is applied, using the Euribor value as a reference.

But it is always best to simulate all the options and see which is the most advantageous solution for your current situation.

Inclined to buy a home? Gather as many offers

If you are inclined to buy a house, you should ensure you are prepared for an interest rate hike. You can always simulate various scenarios of rising interest rates using the Euribor variation in Mortgage Loan Simulator.

If you have several proposals on the table, you can compare the conditions that each bank offers, and negotiate the best solution on the market for you. After all, when you have other proposals, your trading margin increases with banking entities.

But if this type of process is a little confusing or complex for you, in Doctor Finance we have specialists available to find the best solution on the market. Furthermore, get rid of all the bureaucracy that these processes involve and benefits from a monitoring from start to finish this important stage in your life. This is it, without any kind of charges for you!

Fill in the form below and one of our specialists will contact you shortly.

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