The latest results presented by ING and EVO Banco show that mixed-rate mortgages are consolidating as an alternative to variable and fixed. According to the president of the first entity in Spain and Portugal, Ignacio Juliá, the market share of the orange bank within the housing credit sector has grown thanks to this modality, while from EVO Banco they assure that three out of four mortgage loans signed between January and May 2023 had mixed interest.
But is it really convenient to contract a mixed mortgage to finance the purchase of a home? According to analysts from the banking comparator HelpMyCash.com, this modality is attractive in the current context of rising Euribor, since it allows paying a stable and affordable fee during the first years of the term. However, before launching to sign one of these products, it is important to know its particularities and its potential risks.
First of all, it is convenient to know what the configuration of the mixed mortgages is. As its name indicates, the interest of these products is a combination of a fixed rate with a variable rate: the fixed rate is applied during a first period, which usually lasts between five and 15 years, and later it becomes a variable rate , whose value will change periodically according to the evolution of the Euribor.
Therefore, if a client contracts a mixed mortgage, they will pay stable installments during the first years. And, as a general rule, these monthly payments will be cheaper than if you sign a fixed-rate mortgage loan, since the initial interest of the first product is usually lower than that of the second. According to HelpMyCash, the average initial fixed rate for mixed mortgages is less than 3%, while the average rate for fixed ones is around 3.50%.
However, when that period at a fixed rate ends, the interest will become variable and will depend on the fluctuations of the Euribor. That is to say, if the value of this index is high when those first years pass, the mortgage payments will become more expensive. On the other hand, if the Euribor price is low as soon as the variable rate is applied, the client will pay affordable monthly payments.
Another important feature of mixed mortgages is that the longer their initial period lasts, the higher the fixed rate applied in the first years of the credit’s life. For example, in the ING Mixed Orange Mortgage, the initial fixed interest is from 2.99% if its application term is five years, from 3.35% if it is ten years, from 3.45% if it is 15 years and from 3.55% if it is 20 years. To obtain these rates, it is necessary to direct deposit the payroll and contract the entity’s life and home insurance.
Consequently, the shorter the initial fixed-rate period, the lower the installments the customer pays during those years. However, the exposure time to the Euribor will also increase and, consequently, the risk that the monthly payments will skyrocket if its value is high when the interest becomes variable. According to HelpMyCash, the client has to analyze which factor is more important to him, whether a more affordable first installment or a lower risk, and choose the initial period that best suits his preferences.
Now, if the client chooses a longer initial period to protect himself from the Euribor for a longer time, he should know that the bank will apply a higher differential, in addition to a higher fixed interest. It should be remembered that the differential is the part that is added to the reference index (the Euribor) to calculate the variable interest of a mortgage loan.
Let’s say, for example, that a person wants to apply for EVO Banco’s Flexible Smart Mortgage. If you choose an initial period of five years, fixed interest will be applied from 2.45% during that time and from Euribor plus 0.60% for the rest of the term. On the other hand, if the initial fixed rate is applied for 15 years, its price will be from 3.20% and the subsequent variable rate will be from Euribor plus 0.75%. To obtain these interests, you must direct the income and take out home and life insurance from the bank.
Again, from HelpMyCash they advise the client to assess whether it is better to pay something more in exchange for greater security. Of course, its analysts affirm that there is a way to reduce what is paid in interest in the variable rate tranche: advance payments during the initial period. In this way, the term of the mortgage can be reduced so that the interest depends less time on the Euribor.
