With the current market conditions, is it better to opt for a variable-rate mortgage or a fixed-rate mortgage? The answer lies in a study carried out by the Tecnocasa group.
In accordance with the rates in March 2018, the Tecnocasa Research group has calculated the amount of the monthly instalments of a mortgage loan, taking as an example different types of housing prices, fixed and variable rates and the duration of the loan.
With the fixed rate, a fee is calculated that is maintained for the entire duration of the loan, while with the variable rate, the fee is calculated from a reference determined by the financial markets, generally the Euribor.
Since the highs of July 2011 (1.60%), the 3-month Euribor began a downward trend that has brought it below zero since May 2015. The March 2018 share price, -0.33%, is in line with that recorded throughout 2017. The 25-year Eurirs, after new lows in August 2016 of 0.76%, rose to 1.55% in March 2018.
Fixed or variable rate in 2018?
If we opt for a fixed-rate loan, under current market conditions and assuming it’s a 20-year loan, for every 100,000 euro financed there would be an economic pay-out of around 82 euro a month: this means that if we decided today to obtain a fixed-rate loan of 100,000 euro for 20 years, we would spend 984 euro more per year to eliminate the risk of an increase in the rates to which a variable-rate loan is subject.
This would be clear enough if interest rates were always at current levels, but it is difficult to verify over such a long time period because of shifting interest rates.
If we prefer to choose the greater savings option, that is, a variable-rate mortgage, it is essential to understand the extent to which the family's income is capable of supporting any increase in monthly instalment amounts due to the interest rates, both in terms of capacity to pay off the loan and the sustaining the standard of living to which we are accustomed.
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