The best fixed-rate mortgages to start 2022

by Alex Musk

It is a relatively common question and, of course, a question that the vast majority of us ask ourselves when deciding the type of mortgage with which we want to acquire our home.

In general, we already know that the most common choice is variable-rate mortgages; however, fixed-rate mortgages are also an option. We are currently seeing a downward trend in the application of differentials in variable interest mortgages; that is, they are becoming cheaper, but we are not so clear about what is happening with fixed-rate mortgages.

The data relating to the first half of the year, knowing that this was a time of scarcity in mortgage contracting, was very defining: less than 10% of the deeds signed during this period corresponded to fixed-rate mortgages IVF insurance, this marks since then a reality in which we are not valuing this option as important, moving closer to the variable rate because, effectively, it is in principle cheaper.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a mortgage loan in which the amortization fee agreed between the client, and the entity will remain unchanged throughout the active duration of the product. This fee will depend on an interest agreed upon by the parties at the signing of the mortgage contract and may not be altered, except for specific clauses in said contract.

In essence, the fixed-rate mortgage is considered to be more secure against the evolution of interest rates. The mortgaged person knows in advance the systematic cost of their installments and can plan their economy in the long term, counting on this constant and unalterable cost. However, it must be borne in mind that these are more expensive mortgages than variable-rate mortgages in a significant proportion. In addition, generally, the repayment terms of these mortgages are shorter than those of variable rates.

Fixed-rate mortgages have occupied an important place within mortgage loans, although they have almost always been associated with purchasing power. If we take a look back one or two decades, we find fixed-rate mortgages with percentages that today seem unimaginable because they are high. However, the uncertainty that has settled in people regarding the evolution of housing prices and interest rates means that this perception has changed.

We have an example of all this in the evolution of the granting of fixed-rate mortgages in the last ten years. If in 2006 only 2.5% of the mortgages that were signed were at a fixed rate, in 2016, this amount was around 25%.

This growth has to do with two things:

  • Fixed-rate mortgages have dropped decisively from 3%, overcoming an important psychological barrier
  • The fear of an upward trend in interest rates is now at historic lows

In this context of fear, reasonable or not, it seems understandable that 30-year mortgages below a 3% fixed fee may be attractive to profiles of people who can assume these fees, who do not want to be shocked, and who want to maintain the peace of mind of seeing your mortgage loan protected against the fluctuations of the markets.

Why do we prefer variable-rate mortgages?

The most immediate answer is obvious because it is cheaper. As a whole, although there are other elements to take into account. Really variable-rate mortgages work well in the low moments of the reference indices and the application of interest; however, the movements of both harm the product in the long term, as we have already verified in the current historical series, this implies that in the development of a normal mortgage between 20 and 30 years of amortization, the possibilities of variation of the references are many, and of course, at such a long term, hardly predictable.

Therefore, really, in general, the analysis that we do when contracting a variable interest mortgage is short and medium-term, which makes sense from the immediate point of view for the repercussion in our pocket, but, however, in the long term, it is not a strictly reliable operation from the point of view of costs.

In this context, a greater impact of fixed-rate mortgages would seem logical; however, not only do they not take off, but the contracting percentages, as we can see, are even lower than what might be expected.

The fixed-rate mortgage option

Fundamentally we are not inclined towards fixed-rate mortgages because of the price, it is true, but also because the usual conditions of these mortgages are not usually attractive. Financial entities promote variable-rate mortgage loans, and in many cases, within their catalog of offers, they corner fixed-rate ones, greatly reducing the volume of supply. There is little space in the entities’ mortgage catalogs for this product.

It is true that if we take the whole of the current fixed-rate mortgage offer and analyze it, the average of these offers is only not very attractive, but also generally comes with access conditions that are even more complex than those already They have variable-rate mortgages, this does not help much from the user’s perspective to view the product as more beneficial in any of the cases.

Today the best fixed-rate mortgages are at rates between 2% and 3% (there are cheaper ones with high conditions and more expensive), but they have shorter repayment terms than variable-rate mortgages; within the general conditions, these are mortgages that require high minimum financing compared to variable-rate mortgages, and also the financing limits are usually below the usual 80% corresponding to variable-rate mortgages.

This means, on the one hand, that we face a more expensive mortgage as a reference than those of a variable rate, which also finances a smaller amount, which forces us to have more of our own available funds to face the unfinanced difference and expenses, and which requires us to a higher level of requirements at the time of your application.

The conclusion is really simple today, variable-rate mortgages, even though they are interesting due to the relative peace of mind provided by the stability of the interest rate, are not accessible to all pockets since they require an initial disbursement much higher than that required by the variable rate mortgage.

In this post, we show you if it is worth it or not to reunify the debt in your mortgage.

Who are fixed-rate mortgages for?

Of course, fixed-rate mortgages are not for all user profiles. In fact, even many people who meet the basic characteristics to be able to sign a fixed-rate mortgage will continue to prefer the variable interest option.

In the first place, someone who prefers a fixed-rate mortgage is someone who has a considerable guarantee on their future income, that is, who knows that they will be able to pay the mortgage payments over time under normal conditions. Obviously, an unstable economy is not a good ally of a fixed-rate mortgage, basically because it will be more expensive than the variable one. However, here we must take into account the great ally of domestic financial planning, which is the fact of knowing in advance the costs of our mortgage loan for its entire duration. On the other hand, the early repayment of a mortgage loan at a fixed rate is also interesting and, depending on the evolution of the markets and interest rates; it may even be cheaper than other options.

Secondly, those who prefer a fixed-rate mortgage are those who distrust the evolution of interest rates. It is true that we are in a period in which both interest rates and spreads are at almost historic lows, but it is no less true that the cyclical evolution of the markets makes this situation temporary; the question is to guess if that temporality is more or less long, something that is not even in the hands of the great economics gurus, much less in our hands as users.

If these two conditions are met, and you also have access to a good mortgage offer, you are an ideal candidate for a fixed-rate mortgage. However, what has been said in advance: these profiles are not always exact, and they are not always adequate even when they may seem so. It is always best to carry out a study of the impact of the mortgage on our pocket over time, including factors such as price growth, a variable interest rate growth ratio, etc. Probably this way we can make a better composition of place.                                                                                                                     

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