What the future looks like for mortgages and mortgage rates is always an interesting question and anyone with an answer can often save money. With the financial crisis and the poor economic situation around the world, the policy rate has been very low, but now that it is starting to look a little brighter, it is probably soon time to raise the interest rate. In early July, the Goodbank decided that the interest rate would remain at 1%, which is really low. However, in the fall of 2014, it is expected to be increased to, for example, 2% and then slowly worked up towards 5% and higher until 2016.
How should you do with your mortgage? As usual, there are different opinions on how to handle the situation. Some advocate to tie up their mortgage because there are fairly strong indications that the repo rate will be raised next year.
By fixing the interest rate, you can save money by getting an interest rate somewhere around 0.8% lower than the variable interest rate.
Choose to bind your loan with a slightly different length
In this situation, you can also choose to bind your loan with a slightly different length, for example a part of two years and a part of five years, while leaving some variable. However, there are also disadvantages to binding your mortgage with different maturity and that is that you have a slightly worse position when negotiating the loan. You cannot threaten to leave the bank for another bank when you are stuck with a tied part and then it becomes more difficult to bargain properly.
Those who advocate adhering to a floating mortgage do not think it worthwhile to bind the loan. Historically, it is more profitable to have a variable interest rate on the mortgage and what you can do is simply run on the current low interest rate and utilize the very low interest rate to save more money. You can invest the saved money in safe forms so that you build your own buffer to have as security. In this way, it will not be as important with the “insurance” against possible future interest rates as a fixed mortgage rate is usually said to be.
Some general tips on mortgages and interest rates
Although the mortgage interest rate is as low as it is now (around 2.90%), it is actually not impossible to bargain a little.
It is going better than one might think and it is possible to get an interest rate around 2.40%. With today’s low level of repo rate, 3% mortgage rate is not very cheap even though it feels very cheap compared to what it could be. So take a chance to bargain a little.
Be careful about tying your mortgage
The banks will probably recommend you to tie up your loan for more security. The banks themselves earn you from committing but you usually do not. With such a stable repo rate as we now have, it is not particularly uncertain to let the mortgage loan be movable.
If you were to get your loan tied up, it could be an advantage to tie everything with the same period of commitment. You will then have better opportunities to negotiate when the binding period is over because you are completely free to choose another bank instead of stopping. It is the fear of losing you as a customer that will eventually give you a good mortgage rate.
A low interest rate means low mortgage rates, but it also means that you get a bad interest rate when you want to save money. It can be difficult to find good savings forms that give a reasonable return. Do not, however, actively seek out a bank with reasonable interest rates. It is important not only to settle for what you have but to continue to search for gold.