Mortgage loans They have their own characteristics that differentiate them from other types of bank loans. One of these characteristics is that, depending on the type of repayment system with which they are paid, they have three types of interest rate: fixed rate, mixed rate and variable rate. In the next post we will see the differences between mixed rate and variable rate of mortgage loans.
Mortgage loans: Difference between mixed and variable rate
In mortgage loans there are three types of interest rate under which the loan can be amortized:
- Fixed rate: As the name implies, this type of interest rate does not vary throughout the term of the loan, so the customer pays the same fee from the first to the last, without changing whether the rates go up or down.
- Variable rate: It is the opposite of the previous one. This type of rate changes over time and is updated annually or semi-annually, depending on the bank’s conditions.
- Mixed rate: It is a mixture between fixed rate and variable rate since during a period of the credit a fixed rate is charged, between 5 and 10 years depending on the term of the credit, time from which it becomes variable and begins to be updated.
However, it should be noted that each type of interest rate has its advantages and disadvantages, although clients usually prefer to choose the fixed rate since it provides greater stability and security in the payment of their fees. But what about mixed and variable rates?
What is the difference between mixed and variable rate?
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Well, in the variable rate the interest changes when the first year of the term (or the first semester) passes according to the interests in force at that date. This will be the case throughout the life of the credit, so each year the client must face a different interest rate that can go up or down. This last point is important since many think that their interest rates in variable mode will only go up, but the truth is that they can also go down.
However, with the mixed rate you have a fixed-rate credit period, which allows you to stabilize your expenses during the first years of the credit. This is very useful since after facing the heavy expenses involved in buying a house (since not all the value of the house can be financed by the bank) the most convenient thing is to have some stability with respect to the payments of the debts. Even so, by passing this period you are likely to face changes of a variable rate.
So the main difference between mixed rate and variable rate is that the mixed rate offers the possibility of having a stable period at a fixed rate and then starting with the variable rate. On the other hand, in the variable rate the changes begin to be applied as soon as the first year of the credit passes.
Mortgage credit: What is appropriate: mixed or variable rate?
As mentioned earlier, many customers opt for the fixed interest rate, which, although it is usually a little higher, implies a fixed fee for the entire loan. However, under certain circumstances it is convenient to select mixed or variable rates.
Mixed rate: It is convenient to select a mixed rate for the mortgage loan when:
- You are willing to assume a variable rate over the fixed rate period.
- You plan to renegotiate the mortgage loan after the end of the fixed rate period.
- You are stabilizing your personal finances, and betting that they will improve your income to face a variable rate.
Variable rate: It is convenient to select variable rate when:
- You have the economic capacity to face interest variations annually.
- When a period of economic stability is predicted in the country.
- You can ensure that your economic condition will be maintained and even improved.
Being clear about the difference between mixed and variable mortgage rates can help you make the decision on which interest rate to choose to pay off your credit. If you consider that your economic situation can improve over time it will be convenient to choose a variable rate, since you can face the changes when the rates rise but you will also enjoy the benefit of having a reduced rate when they fall. And if you plan to renegotiate the mortgage loan in the future, a mixed rate may be convenient since it allows you to have stability for a while and then enter a variable rate stage.