Fixed vs. Variable Interest Rate

When taking out a mortgage, one of the most important decisions you’ll need to make is whether to choose a fixed or a variable interest rate. Both options come with distinct advantages and disadvantages, depending on your financial situation and personal preferences. In this article, we’ll help you understand both options, so you can make the best choice for your home loan.

What is a Fixed Interest Rate?

A fixed interest rate remains the same for the entire duration of your mortgage. This means your monthly payments will stay consistent, regardless of changes in the market interest rates. This predictability is a major advantage for many borrowers, as it allows you to plan your finances without worrying about unexpected rate hikes.

The fixed interest rate is determined by factors such as the loan term and your financial profile. Below are the current-fixed rates for loans covering up to 80% of the property value:

• 10 years: 2.02%
• 15 years: 2.43%
• 20 years: 2.49%
• 25 years: 2.72%
• 30 years: 3.47%

When you sign up for a mortgage, your lender will provide you with an amortization schedule, giving you a clear overview of your monthly payments throughout the term of the loan.

What is a Variable Interest Rate?

Unlike a fixed rate, a variable interest rate can change during the term of your loan based on market conditions. In Belgium, the rate is calculated using a reference index determined by the Federal Debt Agency, which is updated regularly. The main benefit of a variable rate is that you could pay lower monthly payments if market rates decrease. However, there is also the risk that your payments could increase if rates rise.

You have several options for how often the interest rate is revised:

• Annually: 1/1/1
• Every three years: 3/3/3
• Every five years: 5/5/5
• After ten years, then every five years: 10/5/5
• After twenty years, then every five years: 20/5/5

The interest rate will depend on the loan term and the loan-to-value ratio (the proportion of the loan relative to the property value):

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

What Other Costs Should You Consider?

In addition to the interest rate, there are other costs associated with your mortgage that you should factor into your financial plan:

• Administrative fees: For processing your loan application.
• Notary fees: For registering the mortgage deed.
• Purchase costs: Including registration fees, typically around 15% of the purchase price.

These additional costs can significantly impact your overall budget. Be sure to account for them when planning your financing to avoid any surprises.

Which Option is Right for You?

The choice between a fixed or variable rate depends largely on your personal preferences and risk tolerance. If you prefer stability and predictability, a fixed rate is likely the best choice. On the other hand, if you’re open to taking some risk for the potential of lower payments in the future, a variable rate could be advantageous.

Before making your decision, take the time to compare the different options available and, if necessary, consult a financial expert. This will help ensure that you choose a mortgage that aligns with your financial goals and future plans.

Conclusion: Take your time to carefully evaluate your mortgage options and choose the interest rate that fits your situation. An informed decision can help you manage your finances and secure your home loan with confidence.