Making the decision to choose between a fixed or variable mortgage is one of the most important steps when taking out a home loan. Both options have advantages and disadvantages, so it is essential to consider each option based on your financial circumstances and personal preferences. Below, we look at the key differences between both types of mortgages so you can make an informed decision.
Difference between fixed and variable rate mortgages
Fixed-rate mortgages are those where the monthly payment remains constant throughout the life of the loan. This guarantees financial stability and allows for long-term planning, since the conditions do not vary.
Variable rate mortgages, on the other hand, adjust according to the market, varying their interest rate at each review period, which can be half-yearly or annually. This type of mortgage uses reference indices, such as the Euribor , which means that the instalments can increase or decrease according to market fluctuations.
Advantages and disadvantages of fixed and variable rate mortgages
Fixed rate mortgage:
• Advantages : It offers stability and security, since the installments do not change, which facilitates long-term expense planning.
• Disadvantages : They do not benefit from possible interest rate reductions and usually have a higher initial rate.
Variable rate mortgage:
• Advantages : In times of low interest rates, it allows you to save on monthly payments.
• Disadvantages : Payments can increase significantly if interest rates rise, which can create financial uncertainty.
How to choose between a fixed or variable mortgage?
Before making a decision, evaluate your risk tolerance and whether you have the financial capacity to cope with possible increases in your payments if you opt for a variable-rate mortgage.
Opinions on fixed or variable mortgages
In a recent article on UCI.es , some people shared their opinions on choosing between a fixed or variable mortgage:
Cristina Pérez, 45 years old. University professor.
“It depends on the interest of the variable, the mixed and the Euribor. Now they say that the mixed ones are better, but I would have to do an exhaustive study on the subject before choosing one option or another. Right now I cannot tell you whether the fixed or the variable ones are better because I have not analysed and compared the data, I would need to study it calmly.”
Manuel Alcocer, 42 years old. Unemployed
“I would buy houses the way our parents did, with mortgages. I don’t like mortgages, but if I have to choose between paying a fixed interest rate or a variable one… it’s better to always pay the same, even if it’s higher, because that way I can organize myself better, I know what expenses I’m going to have every month and I have everything under control.”
José Luis González, 25 years old. PhD student
“I don’t know the differences between the two products very well, but I think I would prefer to pay a fixed interest rate, even if it were higher, than a variable rate that I couldn’t control. For me, it’s much better to know the conditions in advance and not have them change from one day to the next without me being able to do anything.”
Conclusion
There is no one-size-fits-all answer to whether a fixed-rate or variable-rate mortgage is better. It all depends on your needs, risk tolerance, and financial situation. While fixed-rate mortgages offer stability, variable-rate mortgages allow you to take advantage of market fluctuations, albeit with some risk.
Analyze your options carefully, compare different offers and consult with experts if necessary to make a decision that fits your financial future.