The truth is that this year is being interesting (or really interesting) concerning to mortgages. In continuity with what has already been started last year, spreads on mortgages have continued to drop and, if in 2015 the psychological barrier of this spread was standing at 2% at this point in 2016 seems to stand at 1%, with several proposals already below this differential.
Advantages of variable rate mortgages
The variable rate mortgages are loans where the interest rate you pay changes over time based on the type of reference chosen. The review of mortgages is usually done on a monthly or yearly basis and at that time the loan fees will be updated. Its main advantage over fixed rate mortgages is that they tend to be cheaper in terms of interests to be paid that are lower (usually, except in cases such as mortgage soils, the Euribor plus differential don’t reach a fixed quota). On the contrary, their disadvantage is that they provide a certain amount of uncertainty to our finances and make planning more complicated, not knowing exactly how much you are going to pay every month for the mortgage.
Drawbacks of variable rate mortgages
Probably the biggest drawback or disadvantage of a variable rate mortgage resides, logically, in the variability of costs that this method entails. That is, as indicated above, when we choose a variable mortgage we assume a certain level of uncertainty about future costs of quotas, these can evolve both positively or negative for our pocket by decreasing or increasing.
Within the alternative ways to variable rate mortgages we find in the first place fixed-rate mortgages. However, these fixed rate mortgages tend to be comparatively more expensive, and have the particularity of not mutate the fee, regardless of the evolution of interest rates, which, in periods of low interest rates comparative costs can be really remarkable.
On the other hand mixed options that contemplate a fixed interest rate period plus a generally higher variable rate period are not a widespread product nowadays, in any case, it is a feature that proposes a fixed period or a grace period as part of a value-added bonus, but rarely as a product feature.