The fixed rate mortgage is the right solution for those who want to protect themselves from dangerous situations linked to market trends. Here are all its features.
The fixed rate mortgage and the Italians. A love at first sight, a marriage that is renewed every year. All the data confirm it. In our country, in fact, there is a great preference for this type of mortgage. The reasons for this are not very difficult to guess. The fixed rate represents the mortgage with the lowest risk margin. Below, we will describe all the characteristics of the fixed rate mortgage.
What does fixed rate mean?
Fixed rate basically means the amount of the installment always the same. This is, in fact, the main characteristic of the mortgage with the invariable rate. Why do you prefer a mortgage of this type? First of all, for the characteristics of the mortgage itself. Being a medium-long term loan, with the fixed rate, risks associated with any changes in the personal status quo, as well as economic and financial ones, are not assumed.
In fact, both factors must be taken into consideration. Thanks to the fixed rate, the borrower will have the opportunity to choose an installment with a sustainable amount throughout the duration of the loan. With the variable rate mortgage , in fact, there would be several unknowns, mainly related to the fluctuations in rates. With the fixed, however, you are sheltered from any sudden changes in the economic and financial sector.
Advantages and disadvantages of the fixed rate
What are the advantages of the fixed rate mortgage ? We have, in part, specified it earlier. The main one is the stability of the installment. The other is a relative advantage, in the sense that if inflation were to rise, the rate of your mortgage will not change.
Clearly, otherwise, the situation would turn around and the drop in inflation, and therefore in rates, would be interpreted as a disadvantage. Another point against the fixed rate is represented by a mortgage with a spread tendentially higher than the variable, at least in the initial phase.
Fixed rate: how you get it
To obtain the fixed rate, the spread determined by the bank must be added to the Eurirs rate. The first is, therefore, a variable factor, in the sense that it can change from one bank to another and that, in simple words, corresponds to the gain that the credit institution will obtain from the loan. When a bank’s policy is aimed at attracting customers and disbursing new mortgages, the spread is very likely to be lowered. On the contrary, it will be increased if the goal is to decrease credit disbursements.
The Eurirs (Euro Interest Rate Swap) is the European interbank rate used to calculate fixed interest, just like those of fixed rate mortgages. It is a rate that is determined on a daily basis and that is completely disconnected from the monetary policies of the Best Bank . It is, however, linked to the duration of the mortgage. For example, a 30-year mortgage requires you to take Eurirs 30-year as a reference. For a 15-year mortgage you look at 15-year-old Eurirs and so on.