Fixed or variable rate – which is the most advantageous in the credit

The answer to this question is very subjective. Both fees have their advantages and disadvantages, so choosing one over the other should be made according to the customer’s needs and the specifics of each case.

On the one hand, the fixed interest rate remains the same over a certain period of time or throughout the life of the loan and is contracted between the customer and the bank. On the other hand, the floating rate fluctuates according to the fluctuations of the reference interest rates in the market, being indexed to Capital Lender.

 

Fixed rate loans

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At first glance it is immediately possible to glimpse the advantages of both situations. As the variable rate adapts to the economic context, rising in times of financial crisis and falling in periods of prosperity, it may or may not be favorable to the end customer of the credit. Its disadvantage is undoubtedly the unpredictability of the amount to be paid as it does not know what revisions will be made to the rate over the years. The flat rate, in turn, is higher, but has the advantage that there are no unforeseen circumstances, and if, for example, Capital Lender increases significantly, the flat rate previously defined may become more advantageous.

As a rule, banks tend to offer their customers a fixed rate on mortgage loans for a period of 5 years, justifying the recommendation with Capital Lender forecast to rise in the coming years. The flat rate is changed according to the Capital Lender period chosen (which may be 1, 6 or 12 months), and it is usually more profitable in the long term.

 

Flat rate is currently not the most profitable

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Indeed, a gradual increase in interest rates is expected in the coming years, but with fixed rates at this time, variable rates continue to become more economical. In recent years, Capital Lender has averaged around 2%, while the fixed rate offered by banks has been around 3%, and opting for the fixed rate has not been paid off.

For about 3 years now Capital Lender has shown negative values, so that those who chose variable rates are paying lower monthly installments. From the outset, we could consider that the variable rate is, as a rule, the best option. However, the flat rate always offers more security as it gives you the certainty that the monthly installment amount will not change. In essence, what you overpay for the fixed rate turns out to be insurance that guarantees that you are not subject to market fluctuations. The final decision must be taken into account, taking into account the advantages and disadvantages of each of the fees as well as their economic situation.

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