When applying for a mortgage loan , an amortization agreement is established with the bank through which you will agree to pay your debt through installments that have a capital charge and an interest charge. In this last point it should be noted that there are fixed, mixed or variable rate mortgage loans, and depending on the agreement with the bank the client will pay one of these interest rates. But, in mortgage loans, what is appropriate: mixed or fixed rate? We will show you information that may be useful when choosing what type of interest rate will be most convenient in your case.
Mortgage loans: What is a mixed or fixed rate?
In mortgage loans the selection between mixed or fixed rate will determine how the loan will be amortized and how much will be the value of the installments during the term of the same. But before making a decision on what type of interest rate is best for you, it is important to know how to identify each one:
- The fixed rate, as the name implies, remains the same for the entire term of the credit, so the credit fee is the same for the entire term.
- The mixed rate is a type of rate that mixes a period of the term with a fixed rate and the rest with a variable rate. That is, for a time the client pays with a fixed rate, so their fees do not change, but when this first stage is completed the rate will become variable so it can be readjusted and updated and, consequently, will modify the value of the credit fee whenever it changes.
Contracting a mortgage loan, what is appropriate: fixed or mixed rate?
The answer is a bit ambiguous, since each client has different financial and labor circumstances. In addition, we are talking about a type of credit that is amortized over an average term of 15 to 20 years, a long-term project on which changes in the environment and economic circumstances are latent at any time.
Depending on the economic climate of a country, banks may offer mixed rates in order to anticipate losses in the value of the properties in the face of inflationary changes in the country. In this case, the mixed rate is convenient for the bank and not for the client since it must adjust to the increase in the interest rate of their mortgage loan. This increase can be little or a lot, it is open to the circumstances of the mortgage market at the time that the period begins to run with variable rate, so it generates uncertainty in the client.
However, the mixed rate offers the customer the possibility of obtaining better conditions in the future, if interest rates have fallen, either in the bank in which it was requested or in another, since a transfer of the debt to another bank with better conditions can be made.
Many clients the fixed rate is more convenient
Since it will not change over time, whatever happens in the country, and their quota will remain the same. This is a clear advantage as it protects you as a debtor from changes in inflation. However, if the rate falls in the future, the fixed rate customer will be paying the agreed interest.
Therefore, if your income level does not allow you to face substantial increases in the installment in the medium term, the most convenient for your mortgage loan will be to agree on a fixed rate. But if on the contrary you have a projection of an increase in your income, a mixed-rate mortgage loan may suit you since although the rate may increase, it could also decrease.