In recent years, many consumers have taken out a mortgage with a variable mortgage interest rate. The mortgage interest rate is reset each time after a certain period. Since this interest rate has mainly fallen in recent decades, it seems attractive to take out a variable mortgage. However, it is very important to do this in a well-informed manner, because there can be large differences between the mortgage interest rates that different mortgage providers charge.
Variable Mortgage Rate
A variable mortgage interest rate is characterized by a periodic (for example monthly, quarterly or semi-annually) revision of the mortgage interest rate. This means you can immediately benefit from an interest rate reduction, but the interest amount can also increase, meaning you have to spend more money on the mortgage. In recent years, mortgages with a variable interest rate have been relatively cheap, which is why many people have taken out such a mortgage loan. The interest rate is determined by supply and demand on the money market; If rates in this market rise, the variable mortgage interest rate will rise along with it, but if rates fall, this also applies to the mortgage interest rate. The final amount to be paid is based on the so-called Euribor rate. This is an official rate that banks charge each other, with a distinction between a rate based on one, three or six months. The Euribor rate is stated daily in the newspapers, allowing consumers to consult it and switch to a fixed interest rate in time if they expect a future interest rate increase based on this information. On top of this Euribor rate, the banks levy an interest surcharge (to cover costs and profit margin); This total amount forms the final variable mortgage interest rate that the consumer must pay. In a period when mortgage interest rates are low, it may be attractive to fix this interest rate for a longer period of time. This can be done once and the consumer can decide for himself what the duration of the fixed interest period will be.
In July 2009, a study by Independer and RTL Nieuws showed that there can be large differences between the interest rates of different mortgage providers. This focused in particular on mortgages with variable interest rates . It turned out that almost every bank had increased the interest surcharge in the period prior to the research. Only ING did not do this, meaning that customers of other banks sometimes had to pay hundreds of euros more per month for the same mortgage. The Euribor rate at that time was around 1% and consumers with a variable mortgage interest rate should have benefited from such a low interest rate by also paying little mortgage interest. But some banks made their customers pay more than 4% interest, which was very unfair, according to De Vereniging Eigen Huis.
What to pay attention to when choosing a mortgage with a variable interest rate?
Because not every bank is as quick to adjust the variable mortgage interest rate when interest rates fall, it is important to compare different providers. Furthermore, a variable mortgage interest rate must be clearly structured and this information must be openly available. A fixed interest surcharge on top of the Euribor rate is an advantage, as you can now opt for a low interest rate, but if the bank increases the interest surcharge after a few months, it will still be relatively expensive. That is why the following matters are very important when choosing a variable mortgage interest rate:
- ask your mortgage advisor how the variable interest rate is structured and determined.
- Always compare multiple offers from different mortgage providers , especially when you are considering a combination interest rate (a variable interest rate can play an important role here).
- A fixed interest surcharge is an advantage, because a variable interest surcharge is almost only adjusted upwards. In addition, providers of variable-rate mortgages may charge an interest surcharge when you convert your mortgage to a fixed-rate form. So pay close attention to the small print regarding the interest surcharge, as this can save you a lot of money.
- Only take out a mortgage with a variable mortgage rate if you have some room in your budget. Because interest rates can fluctuate greatly, you must be prepared for possible interest rate increases.
- Finally: Always be well informed and do not rush into action!