Interest rates of a mortgage loan
How the interest rates work
Interest as an amount is the money you pay to the bank in return for borrowing from it. You pay a percentage of the amount you borrowed and this percentage is called interest rate.
We would all like a low mortgage rate as this means we pay less to the bank in total borrowing costs. You should keep in mind that the number you see in the interest rate (e.g. 3% or 4%), in essence describes how much the risk that the bank assumes towards the borrower with this loan costs. That is, interest rate mortgage equals risk, more simply, interest rate = mirror of risk.
Interest rates are usually set by the bank, but they always follow and are affected by the prime rate set by the European Central Bank (ECB) or some other interest rate index such as euribor. In euribor reflects the expectations of the markets for the future fluctuations of the ECB’s key interest rate, i.e. it is in daily change and the bank with which you agree to have this as an indicator, also determines a certain date every month that is always the same to observe it and take it into account when determining your installment.
There is monthly, quarterly, semester etc. So on top of this interest rate that is obtained as we explained above, the bank adds its profit margin (spread) which fluctuates accordingly each time. We easily understand that banks now price each borrower separately according to the coverage – guarantees he offers. Here we also add the special tax of the law and the sum of them all shows us our final interest rate. We must remember that it is mandatory by law that mortgage interest rates are always linked to some index such as the above or others.
Get a good interest rate
How can you get a good interest rate on a mortgage?
You have a stable job and income
Full-time employment, with steady income for the past two or more years, can help you get a better mortgage rate. Banks can be particularly strict with the self-employed and may ask for a few years of profitability to ensure that you can regularly pay your loan.
You have a healthy deposit
In general, the bigger the deposit you hold with the bank you applied for your mortgage, the better the interest rate will be. This is usually because the more money you have, the less of a risk you appear to the bank. Any amount that, upon request, appears to be more than your down payment, deposited into an account, works particularly well for your approval and its terms.
Fixed interest rate throughout
What is a mortgage with a fixed interest rate throughout the term?
Now the most advantageous solution at the present time is a program of fixed interest throughout the term, without the cost of early repayment either in whole or in part. Until now, in this category if the interest rate is fixed throughout the duration of the loan, it is about 3-4 points higher than the cases of loans with a floating interest rate. This is no longer the case after the banks’ promotions. Here the interest rate and our monthly installment remain the same for the entire duration of the loan and are smaller than the fluctuating ones of the current period. So it is a historical opportunity!!!
They are almost always no higher than mortgage rates that are variable throughout or fixed for a set period.
How does a fixed rate loan work?
Your monthly payments are fixed for the duration of the agreement, regardless of how interest rates change – up or down.
Floating interest rate mortgages
When interest rates are on a downward trend, the installment on the floating rate will also fall. Early, partial or even full repayments are allowed. Floating interest rates allow payment on the loan outside of monthly installments. So the remaining loan is reduced faster and thus the remaining installments are also reduced. Corresponding changes in the loan installment with changes in interest rates leave no room for planning. In other words, you can see from the above that floating interest rates mortgages are better to choose when the economic environment does not have very low interest rates in anticipation of falls, or otherwise for some who intend to repay the debt early without cost.
Fixed interest rate loan at start up
All banks have programs in this category. The usefulness of these programs lies more in your financial planning and your psychology. That is, you feel sure that for an initial period of one, two or more years your installment will not change. In these loans you are protected from upward changes in interest rates. Of course, you buy this peace of mind or certainty from the bank, as the interest rate for this predetermined period is almost always higher than the current floating rate, and therefore our installment. It is then converted to a floating interest rate and of course not at something pre-agreed, but where the reference interest rate is at the end of the fixed period (ie at that moment), until it is repaid. Also, one cannot take advantage of a possible drop in interest rates during the fixed period and it is difficult to accurately predict the floating interest rate that will occur at the end of the period with fixed.