Fixed or variable? Which mortgage is best to get in 2024

Fixed interest or variable interest? The dilemma of those who have to take out a mortgage is no longer constant: choose a “fixed” installment or rely on the “rollercoaster” of variable interest rates; These rates can obviously fall, but they can also rise. What’s worth it? There may be good news in 2024 for those who prefer variable interest housing loans, where installments may start to decrease as of the second quarter of the year. However, even if there are serious declines, fixed interest may be the most suitable option, as we will see in detail later.

Variable housing loans, installments decreasing in 2024

The European Central Bank confirmed its decision to keep interest rates at 4.5%, but forecasts suggest interesting declines could occur in the coming months: a drop of around 10 euros for the average loan, rising to over 100 euros for the most important mortgage loans. The trend is expected to continue in 2025. According to an analysis by Facile.it, which examines Euribor futures representing market expectations, the first “benefits” in installments are expected to come as early as the second quarter of 2024. The study estimates possible changes. The average variable mortgage installment is €126,000 over 25 years, with a LTV of 70% in January 2022. In this case, in December 2023 the installment reached 750 euros, but according to forecasts, the installments should decrease slightly already in April. it will fall by around 10 euros, then another 30 euros in the third quarter, to end the year with a cut of almost 100 euros compared to last December’s monthly payment. Again, according to the study, if the effects are extended until June 2025, the installment amount could be around 630 euros, that is, 120 euros less than the starting point.

Long-term increases affecting interest rates in 2023 also affected various values ​​​​related to housing loans. Last year’s average claim was equal to 127,595 euros; this was 8% less than in 2022, but at the same time the average installment increased by 13%. While the average monthly amount in 2022 was 612 euros, we reached 695 euros in 2023. The age of applicants is also increasing: if the average age of those applying for a mortgage in 2022 was under 38, in 2023 they became over 40 again, which had not happened since the first half of 2021. Linked to a decrease in the weight percentage of those under 36 years of age from 50% in 2022 to 39% in 2023; The rise in interest rates has clearly had a heavier impact on segments of the population with less solid incomes, and even if only mortgages sought for the purchase of a first home are isolated, a significant decline in the share of those aged under 36 emerges; 51% compared to 58% in 2022.

Flat rate is convenient (even with blackouts)

Following expected reductions in variable interest rates, fixed interest rates are expected to remain the most affordable option for at least the next 24 months. The confirmation comes from an analysis carried out by the Telemutuo research office, which shows the differences between taking out a variable and fixed rate mortgage assuming a 2% drop in the cost of money in Europe over the next 24 months. The work starts with a loan of 160 thousand euros with a maturity of 20 years. The monthly installment equals 860 euros at a fixed rate of 2.65%; against the initially requested 1,020 euros at a variable rate of 4.6%. Assuming a 1.5 percent interest rate reduction over the next 18 months, variable rate mortgage installments will fall to around 900 euros; This figure is always higher than the fixed interest rate. To “equalise” the monthly installments of fixed-rate mortgages, a further 0.5% reduction in variable interest rates would be required: a scenario that is currently very “far” both in terms of time and from the current situation.

In addition, choosing a fixed-rate loan allows you to gain advantages due to the reduction of the principal amount. Again, according to Telemutuo estimates, after the first two years, the remaining debt of the 160 thousand euro fixed-rate mortgage is at 147,536 euros, compared to 148,800 euros of the variable-rate loan. This means more capital repayment with a fixed interest rate of €1,264 compared to a variable interest rate. Even if the duration of the mortgage is increased from 160 thousand Euros to 30 years, the result is obvious: In this case, the difference between the principal paid by a fixed principal and a variable principal in the first two years is around one thousand Euros. In short, according to the figures we have, fixed exchange rates remain the most cautious and currently the most advantageous route. This situation may only change if the expected cuts occur within the next 12-24 months.

Source: Today IT

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