A mortgage should be chosen very carefully, after comparing at least a few offers from competing banks to choose one that meets the borrower’s expectations and does not expose him to high costs. One of the parameters for choosing a mortgage is its interest rate. It is also worth paying attention to whether the interest rate will be fixed or variable? Will the decision to get a loan with a fixed interest rate be correct?
On the one hand, a mortgage with a fixed interest rate is stable for the customer who, despite changes in interest rates, enjoys a constant interest rate on the liability. The downside of such a loan, however, is the higher cost borne by the borrower.
Lower risk for borrowers
According to the Office of Competition and Consumer Protection, fixed rate mortgages generate lower risk for both borrowers and lenders themselves. They have a positive effect on ensuring the stability of the financial sector.
Meanwhile, the mortgage market in the country is dominated by offers of loans with a variable interest rate. Mortgages with a fixed interest rate throughout the period or for a significant part of it are rare. Banks are currently obliged to provide clients with reliable information about the risk related to the variable interest rate of the loan, in particular about the effects of rising interest rates.
Is it worth choosing a loan with a fixed interest rate?
A mortgage with a fixed interest rate will also have a fixed installment amount that will not change during the loan period. That is why it is easier to include it in the long-term home budget. Fixed interest does not pose a risk that even in the face of radical changes in interest rates in the country, the mortgage installment will increase suddenly and in a drastic way.
Dangers of a fixed-rate loan
For a fair assessment of a fixed-rate mortgage, it should be stated that it applies to the entire loan period, which creates conditions for paying higher installments in the future. You never know how the interest rates will behave in the future, or how the policy on interest on credit obligations will be shaped in the near future. Therefore, banks currently offer the longest loan term with a fixed mortgage rate of 5 years, and in most cases it is only 2 years.
The disadvantage should be that the installments of loans with a fixed interest rate are higher than for loans with a variable interest rate, which increases the cost of such an obligation.