To make a good choice between fixed and variable rates, we give you some tips to help you decide which is the best for you.
The fixed rate, also known as the constant rate, is an interest rate remains the same throughout the repayment of the loan. It is defined in the loan offer proposed by the bank. It allows you to have good visibility on your repayments until the end of the loan. The fixed rate is ideal to repay with serenity a mortgage in the long term (more than 8 years).
The variable rate
The variable rate or revisable rate is an interest rate may vary during the repayment period loan, depending on the market trend. The starting rate of a floating rate is lower than a fixed rate.
The interest rate cap (or cap) specifies the limits of the variation of the rate upwards as well as downwards. To limit the risk associated with the variable rate, check that the course is sufficiently secure.
For the revisable rate to be an advantagethere must be a significant difference between the floating rate and the fixed rate. The fixed rate must be high in order to be able to hope for a fall in rates. If fixed rates are low, the variable rate loan has an interest rate for short-term loans (less than 8 years).
What criteria does the bank use to calculate its interest rate?
The interest rate is defined on the basis of several elements:
- The market trendIt can increase or decrease the standard interest rate.
- The rate type (fixed or revisable): be aware that the difference between the fixed rate and the revisable rate also evolves according to market trends.
- The term of the loan: the longer the mortgage lasts, the higher the rate.
- The value of the loanthe higher the sum borrowed, the lower the rate allowed.
- The risk linked to the loan: a significant risk can increase the interest rate.
- The guarantees provided by the loan recipient (contribution, financial investments, etc.): if they are numerous and solid, they allow you to obtain a favorable interest rate.