Which Lenders Offer the Lowest Mortgage Rates?

interest rate

One often wonders what are the mortgages with the lowest rates currently available on the market, especially when one is about to take an important step such as buying a house. The interest rate applied to the loan, in fact, can also substantially change the cost of the loan itself, but before asking which are the mortgages with the lowest rates it is good to understand thoroughly what you are talking about.

What is the interest rate?

The interest rate is the interest value expressed as a percentage applied to a loan or loan.

In fact, when a loan is disbursed, the debtor is required to repay the entire capital according to the procedures provided for during the signing of the contract, plus a certain amount of money as interest, a sum that represents the remuneration for the person who granted and loan disbursed.

The reference values ​​used to calculate the interest rate can be of different types: it is usual to refer to the Euribor for variable-rate mortgages and to the Euris for fixed-rate mortgages, to which parameters such as the spread are added. chosen by the bank, the amount disbursed the duration of the loan, the risk profile of the borrower, the purpose of the loan, and finally Tan and Taeg.

The types of interest rates: the fixed-rate mortgage

Fixed-rate mortgages do not usually turn out to be the lowest rate mortgages, but they do offer some advantages that should not be underestimated.

In this case, in fact, the interest rate is established at the time of signing the contract and remains unchanged for the entire duration of the repayment plan, thus giving constant installments that protect from surprises and allow you to plan the budget with precision. familiar.

In fact, already when the loan is taken out, it is possible to calculate the amortization plan in detail, with an indication of the installments to be paid and their amount.

The fixed-rate is generally calculated as the sum of the Euris base rate corresponding to the duration of the loan and the spread chosen by the bank; precisely because this type of rate does not follow the market trend, fixed-rate mortgages are often more expensive than variable-rate ones.

The variable rate mortgage

Among the mortgages with lower rates we certainly find variable-rate mortgages, which generally have the Euribor as a reference value: as this value changes, the interest rate applied to the loan also changes, giving rise to installments of the variable amount in the time, which cannot be predicted or determined in advance.

This type of rate can be chosen when a decline in values ​​is expected, thus obtaining lower repayment installments; it is usually cheaper than fixed-rate mortgages because banks tend to apply a smaller spread.

There is also the possibility of subscribing a variable rate mortgage with a cap, i.e. applying a maximum ceiling to the increase in the rate in order not to jeopardize the repayment capacity of the debtor, or a variable rate mortgage with a constant installment, in which the amount of the installment will remain constant but the duration of the loan may vary in the event of a rise (or fall) in interest rates. This can be a good solution for those who would like to follow the market trend but are afraid of putting their repayment capacity at risk; the only drawback is that it is impossible to determine the exact expiry date of the loan.

Mortgages with lower rates: the fixed-rate mortgage

This is a type of loan that gives the debtor the option to switch from the fixed rate to the variable rate or vice versa during the loan repayment plan, at fixed intervals, generally every 2, 3, or 5 years.

Its main advantage is the fact that you can choose the most convenient solution from time to time, evaluating the current interest rate and short and medium-term forecasts.

Fixed-rate or variable rate?

It is one of the greatest perplexities of those who look around in search of mortgages with lower rates. There is no one-size-fits-all answer. We have seen the advantages and disadvantages of the two formulas: a slightly higher cost for the fixed-rate, balanced by the security of a constant installment for the entire duration of the repayment plan, greater convenience for variable-rate mortgages, which has lower initial costs and, following the fluctuations of the market, can lower the mortgage payment. The downside, however, is that these variations can also be on the upside; you must therefore be sure that you have the necessary repayment capacity in any case.

The trend in rates in 2019, according to data from the European Central Bank, should remain steadily on the downside. As it is easy to guess, this causes a particular interest in variable-rate mortgages, which could prove to be particularly convenient also in the coming months, especially as regards those of short duration.

For mortgages with a long repayment plan – we are talking about 25/30 years, the fixed-rate mortgage certainly offers greater security; the decision will have to be made on the basis of the borrower’s risk appetite.

What is meant by Euribor and Euros?

These are two values ​​that combine to determine the interest rate of a mortgage or loan.

The Euribor ( Euro Interbank Offered Rate ) is the average interest rate that is applied to interbank exchanges made by the main banking institutions in the Euro area. It is updated daily and since 1999 it has been used as a reference value for calculating the cost of money in Europe.

Precisely for this reason, it is usually used as a reference value to decide the interest rate to be applied to some banking operations, including variable-rate mortgages, which can be among the mortgages with lower rates.

The Euris ( Euro Interest Rate Swap ) is instead the average interest rate applied to the swap transactions carried out by the main banking institutions in the Euro area to hedge the interest risk and is used as a reference value to decide which interest rate of the mortgage choose. This value is also calculated every day by the European Banking Federation.

It is often used to calculate the interest rate of fixed-rate mortgages in conjunction with the spread chosen by the bank. Euris generally grows with the duration of the loan and does not depend on the amount of the capital disbursed: for fixed-rate loans, in fact, the lender is subject to a market risk linked to the possibility that interest rates they rise above the value decided upon entering into the contract, thus causing a loss for the bank.

To protect themselves from this risk, banks enter into derivative instrument contracts called swaps, which can be defined as percentage interest on “reinsured” fixed-rate loans. Euris is the interest rate applied to swaps by major European banks.

What is the mortgage spread?

When we talk about the spread in relation to a mortgage or a loan, we mean the actual cost that the bank requires from the customer for the granting of the loan and the real gain of the credit institution. It is a value that is added to the interest rate applied to the loan, thus defining the fixed cost of the loan. As we have seen, the reference rate changes according to the type of mortgage we have chosen: for fixed-rate mortgages, this value will be given by the Euris plus the spread, for variable-rate mortgages the Euribor plus the spread.

By aamritri

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