With the rise in inflation in the euro area, the European Central Bank started a progressive rise in Euribor rates in all maturities. This rise is leading to those who have a housing loan in progress or intend to buy a house through a housing loan, looking for alternatives to minimize its impact.
Given the current context, and for those looking for some stability, the mixed rate can be a good solution. However, it is important that you do simulations and analyze the various scenarios.
What interest rates exist and which is the best?
A home loan can be associated with a fixed, variable or mixed rate.
In flat rate the TAN remains unchanged until the end of the contract. Therefore, your monthly installment will always be the same until you pay off the entire loan.
On the other hand, the variable rate, varies depending on the Euribor term stipulated in your contract. For example, the three-month Euribor is reviewed quarterly, the six-month Euribor is reviewed every six months, and so on.
Concerning mixed rate, the interest rate changes from fixed to variable during the contract. This change causes the monthly installment amount to only change after an agreed initial period. Basically, this is an option for those who want to benefit from the advantages of the two previous options (variable and fixed rate). Right now, Doctor Finance works with partners who are practicing TAN of 0.9%. Which means that during the first years of the contract you will always have a TAN of less than 1%, something that with a credit linked to Euribor you can no longer achieve.
Although in Portugal the overwhelming majority of home loans are contracted at a variable rate, the choice of interest rate always depends on each situation and what you want. Ie, Do you want to reduce your immediate charges or guarantee some peace of mind throughout the contract?
If you have an ongoing credit agreement and want to reduce your charges, the variable rate is still a good option, as currently there are several banking entities practicing spreads of 0.85%.
Count on the free help of Doctor Finance to clarify this and other questions. Also, find out which interest rate is best for your home loan.
What should I watch out for in a mixed interest rate?
A mixed rate home loan allows you to have a fixed rate during the initial period of your contract and then becomes variable.
In Portugal, the most common periods for which the flat rate applies are 5, 10 and 15 years. However, there are already institutions that make contracts with a mixed rate in which the fixed period is 1 year, 2 years, 3 years and 4 years. A longer fixed maturity period usually implies a higher interest rate.
On the other hand, if your concern is the current rise in interest rates, a maturity with periods of up to 5 years can be a good option. Well, if we look at the history of Euribor and the respective economic cycles, the fall in interest rates tends to happen in less than 5 years. But beware, it is not certain that history will repeat itself.
When contracting the mixed rate with a shorter fixed period, the penalty for an early amortization of 2% prevails for a shorter period. This is if you want to change houses in the next few years.
And attention: when a bank presents a credit proposal, it must contain all the information on the interest rates applied throughout the contract. Your proposal must contain the TAN in the fixed period, which encompasses your fixed interest rate and your spreadbut also the spread which will be applied together with the Euribor value for the remaining term of the contract. In most cases, banks are applying spreads between 0.95% and 1% associated with a variable rate, but values may rise slightly in contracts associated with a mixed or fixed rate.
Can I change to a mixed rate already with an outstanding credit?
Yup. And here you have two options: renegotiate directly with your own bank or transfer your credit to another institution.
When you renegotiate your credit conditions, it is possible to change and save on several things. like the spreadloan term or insurance, for example.
If your bank is not willing to change certain contractual conditions that are essential for you, you can transfer your home loan. With this transfer, you can get a lower monthly installment or the respective change in the interest rate regime.
At this point, a certified credit intermediary and experienced can help you find the best solution. At Doutor Finanças we have a team of doctors focused on obtaining the best solutions on the market for you and your portfolio. And all this service at no cost to you.
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