Variable rate or fixed rate which is best

Fixed rates versus variable rates

Currently in Spain for the first time Spanish Banks are promoting fixed rate mortgage products.

Previously fixed rates have been difficult to obtain and have not been competitive so the choice of what product type to elect for has been an easy one when making an application.

The choice now has widened with a range of good fixed rates being offered starting at 2.45% for a 10 year rate and 2.75% for 20 years. In general the fixed rate products are for the full term it is not usual as it is in the UK to have a fixed/ variable mixed.

Up sides of fixed rate products are stability of payment during the term of the loan and a hedge against rate increases in the future.

Current market conditions

Whilst the variable rate remains below by an average of 1% that of the fixed rates this is only because the 12 month Euribor is at a historic low. For January the 12 month Euribor is 0.059% but it has been as high as 5.75% and on average across the last 14 years it will have sat at 2.5%. 

With margins above Euribor for variable rate Spanish loans being in the region of 2% to 2.5% it would not take long in an increasing rate environment for the variable to meet and then exceed the overall rates provided by the better fixes. 

Choosing the right product type

Fixed rate products can change between application to offer there is no way during the application process currently to secure the rate you are applying for. Fixed rates also have higher early redemption penalties than their variable counterparts giving less flexibility for those mortgage holders who know they will want to make overpayments or reduce the loan term.

Whilst much will depend finally on personal choice and personal circumstances as to whether a fixed rate is the right route at least there is now a viable alternative in Spain.

Read the full article :- What mortgage product type is the best in Spain