The fixed-rate home loans, better known as fixed mortgages, and variable rate home loansVariable mortgages differ mainly in the interest rate applied to them. While in the former the installment that is paid month by month is the same, the installments of the latter are subject to variations in an index to which it is referenced, which is normally the one-year Euribor.
To determine the advantages and disadvantages of each of them, three main factors must be taken into account: the term of the loan, the expectations of income and the ability to cope with a steep rise in interest rates.
Typically, fixed mortgages are indicated for short deadlines, not older than 20 years. However, fixed-rate mortgage loans can be given with a long repayment term, which can even reach 30 years. This type of mortgages is not associated with the risk of any increase in interest rates, so the installments are the same throughout the life of the product.
For their part, variable rate mortgages are usually awarded for a longer term. They are normally offered for a maximum of 30 years, although they can go up to 40.
Because terms are often shorter on fixed-rate home loans, the chances of lower installments are less. The advantage of this type of mortgage is that, once the term in which the payment of the purchased product is to be made has been set, the fee to pay remains unchanged, with no possibility of its price going up or down.
On the other hand, variable rate mortgages, because they have a longer term to repay the loan, opens the possibility of establishing lower fees. Once the term has been set, the amount of the installment may vary according to a reference index, which is normally the Euribor. The most common is that, every six months, the mortgage interest rate is updated taking this index into account and that there are changes in the amount of the installments.
Type of interest
The interest rate is another factor to take into account before requesting a fixed or variable rate mortgage loan. While fixed mortgages have the same interest During the entire duration of the loan, which means that the installment that is paid is always the same, in variable mortgages the interest rate is composed of a fixed spread plus a benchmark index, normally the Euribor. The fee to be paid can go up or down depending on what the benchmark does.
In spite of everything, the most common is that financial institutions offer their fixed mortgages at a higher interest rate than they offer their variable rate mortgage loans.