Blended mortgages have gained popularity in recent years, combining elements of both fixed-rate and variable-rate mortgages. This type of loan offers stability for a time, but also allows you to take advantage of market fluctuations in the future.
What is a mixed mortgage?
A mixed mortgage is a combination of fixed-rate and variable-rate mortgages. During the first period of the loan, the interest rate remains fixed and, after that time, it changes to a variable rate. Thus, during the first years, you pay a fixed instalment, but subsequently the interest is adjusted according to the agreed reference index, such as the Euribor plus a spread.
For example, some banks offer fixed-rate mortgages for the first 3 to 25 years, and then the interest rate becomes variable. This can provide security during the first few years, when the outlay is greater, and flexibility in the long term.
Mixed mortgages: When is the fixed interest rate set and for how long?
In mixed mortgages, the fixed interest rate is usually set at the start of the loan. Depending on the lender, the fixed-interest period can last from a few months to 15 years or more. After this time, the interest rate changes to variable, based on the agreed reference index (normally the Euribor), plus a spread.
This system allows holders to enjoy initial stability, with the possibility of taking advantage of lower variable rates in the future.
What are the advantages of mixed mortgages?
The main advantage of mixed mortgages is stability during the first years of the loan, when the interest rate is fixed. This is especially useful in the first years, when the home buyer has to face a considerable outlay. The predictability of the instalments facilitates family financial planning during this time.
In addition, the fixed rate on a hybrid mortgage is often lower than that offered on a fully fixed-rate mortgage. This can mean significant savings in the early years.
What are the disadvantages of mixed mortgages?
The main drawback is that during the fixed-rate period, you will not be able to benefit from a possible drop in interest rates. Also, when the mortgage changes to a variable rate, you will be subject to market fluctuations, which can increase your payments if rates rise.Another thing to consider is that even though the initial fixed rate is lower than a full fixed-rate mortgage, you could end up paying more in the long run if variable interest rates rise significantly.
How do mixed mortgages work?
The way a mixed mortgage works is simple: it is divided into two periods. During the first, a fixed rate is paid, which offers stability in payments. This period can last from 3 to 25 years. Afterwards, the mortgage changes to a variable rate, and the interest will depend on the Euribor or another reference index plus a spread.This type of mortgage offers the peace of mind of knowing that during the first few years the payments will not change, while in the second period you will be able to benefit from the variability of the market.
Who is a mixed mortgage for?
Mixed mortgages are ideal for those who want to combine the peace of mind of a fixed rate at the start of the loan with the possibility of benefiting from lower variable rates in the future. It is an attractive option for those who want a stable rate in the first years of the mortgage, but who do not want to miss the opportunity to pay less if interest rates fall in the future.A hybrid mortgage is therefore suitable if you are looking for initial stability but also long-term flexibility. In addition, the initial fixed rate is usually lower than that of a fully fixed-rate mortgage, allowing you to save during the first few years.