Bad news for those who intend to take out a mortgage: it is likely that interest rates will not fall in the short term. This is what emerges from the statements made by the president of the European Central Bank, Christine Lagarde, almost a month ago. The French president stated that her organization will maintain its interests “at sufficiently restrictive levels for as long as necessary,” which eliminates the possibility that they will decline in a few months.
And in this context of high interest rates, what should a person who needs to apply for a mortgage take into account? According to the financial comparator HelpMyCash.com, it is essential that you choose the modality well (fixed, variable or mixed) and that you ensure that you have sufficient income and economic stability to pay the installments in an unfavorable scenario.
Choosing a fixed mortgage, for example, may be convenient if rates do not fall. In this way, the interest on the loan will not depend on the Euribor, which is an index that trades at high values ??when the interests of the European Central Bank are high. With these products, therefore, the customer will always pay the same fee, no matter what happens with the official rates.
However, fixed mortgages have a drawback: when ECB rates are high, their interest is also usually high. Currently, according to HelpMyCash, the average fixed rate on mortgage loans offered by banks is around 3.60%, which is significantly higher than what they had just a couple of years ago (around 1.50%), when The interest rate of the European Central Bank stood at 0%.
Despite this, there are some entities that still offer competitive fixed rates. The BBVA Fixed Mortgage is a good example: it has an interest rate of 2.90% for a term of 15 years or 3% for a term of between 16 and 30 years, which can be obtained in exchange for direct debiting of the payroll and to contract the home and amortization insurance proposed by the entity.
Likewise, there are mixed mortgages on the market that have a more competitive fixed interest rate for the first ten or 15 years. They are less secure than those that are fixed for the entire term, but they allow you to pay more affordable installments in the initial period. For example, EVO Banco’s Flexible Smart Mortgage has a rate of 2.95% for the first 15 years and Euribor plus 0.75% for the following years, in exchange for direct debiting the payroll and contracting home insurance. and life of the entity.
On the other hand, opting for a variable mortgage is riskier. In this case, the interest will depend on the Euribor, whose value will remain high if the rates of the European Central Bank remain high. Therefore, if this scenario occurs, the client will pay expensive monthly payments, which could even increase if the Euribor price rises.
Now, this option could be convenient if rates remain high for a short time and fall significantly within a few years. In this case, the installments of a variable mortgage could become cheaper and lower than those that would be paid with the current fixed interests. However, there is also a risk that the opposite will happen: that the ECB will not lower its rates for many years.
For this reason, if the mortgage holder wants to take a risk with a variable interest, the financial comparator advises calculating whether the installments can be paid with a high Euribor to recover in health (its historical maximum value is greater than 5%). In general, the monthly payment of a debt is considered acceptable if it does not exceed 35% of the owner’s net monthly income.
Whatever the modality chosen, HelpMyCash also recommends that potential applicants assess whether their employment situation is stable enough to afford mortgage payments. It should be remembered that the return period for these products is very long, generally between 20 and 30 years, so it is advisable to have a regular source of income that allows you to pay the fees without complications.
For example, if the applicant is a salaried employee, it is advisable that they have a permanent contract and have been in the company they work for for at least a couple of years. And if he is self-employed or an entrepreneur, it is advisable that he owns an economically viable business that has provided regular profits over the last two years, at least.
