Fixed or Variable Interest Rate: Choose the Most Advantageous Option for Your Mortgage

When taking out a mortgage, the choice between a fixed or variable interest rate is crucial. Each option has specific benefits and risks, and understanding these will help you make the best choice for your situation. Let’s explore the characteristics of fixed and variable interest rates so you can make an informed decision.

Fixed Interest Rate: Stability and Security

A fixed interest rate means that your rate will remain the same throughout the loan term. This ensures that your monthly payments will be consistent, regardless of market fluctuations. To determine this rate, the lender considers several factors, including your financial situation, the loan term, and the annual percentage rate (APR), which includes insurance and administrative fees.

Examples of fixed rates by loan term:

• 10 years: 2.02% for a loan up to 80% of the property value.
• 15 years: 2.43%.
• 20 years: 2.49%.
• 25 years: 2.72%.
• 30 years: 3.47%.

A fixed interest rate is ideal if you seek security and wish to avoid any risks associated with changing monthly payments. With a fixed rate, you know the total cost of your mortgage upfront, and the bank will provide you with an amortization table that details monthly payments over the term.

Variable Interest Rate: Flexibility and Potential Savings

In contrast to a fixed rate, a variable rate fluctuates based on market conditions and a reference index set by the government. This means that the interest rate is periodically revised according to your chosen review frequency. In Belgium, common review options include:

• 1/1/1: annual review,
• 3/3/3: review every three years,
• 5/5/5: review every five years,
• 10/5/5: first review after ten years, then every five years,
• 20/5/5: first review after twenty years, then every five years.

Variable rates can be attractive because initial rates are often lower than fixed rates, and you may benefit if market rates drop.

Examples of variable rates by loan term and loan-to-value ratio:

• 10 years: 1.95% for a loan up to 80% of the property value; 2.25% for a ratio of 81-90%; 2.87% for 91-100%.
• 15 years: 2.03%, 2.33%, and 3.09% respectively.
• 20 years: 2.07%, 2.37%, and 3.24% respectively.

A variable rate can save you money if market interest rates fall, but be prepared for higher payments if rates increase.

Additional Costs: Don’t Forget to Include Them in Your Financing Plan

With both fixed and variable interest rates, there are additional costs to consider in your budget. These include administrative fees, notary fees, and purchase costs. These extra costs can reach up to 15% of the property’s purchase price, so it’s essential to account for them in your financing plan.

Fixed or Variable Rate: Which Should You Choose?

• Choose a fixed rate if you seek stability and a clear view of your monthly payments over the loan term. This is ideal if you have a set budget and want to avoid surprises.
• Choose a variable rate if you’re willing to take some risk in exchange for potentially lower monthly payments. If the market rate drops, you’ll benefit from the reduction, but be prepared for possible increases.

Conclusion: Make the Most Advantageous Choice for Your Mortgage

The choice between a fixed and variable interest rate depends on your financial situation and your preference for security or flexibility. By carefully evaluating both options and considering the additional costs, you can secure a mortgage that aligns with your needs and financial goals.