Is a mixed mortgage the best choice for buying your home?
Financial education | 10.13.2023
Imagine you are in a restaurant and you cannot decide between two dishes. What if you could combine the best of both of them? That is basically what a mixed mortgage is: a combination of the features of a fixed- and variable-rate mortgage. You pay a fixed rate of interest during the initial period and, subsequently, a variable rate that tracks the market base rate. Over the past few years, this type of mortgage was not very common but has come back into fashion as the first choice for people who are able to buy a house.
Advantages of the mixed mortgage
- Initial stability as you will pay a fixed rate of interest, so you will know exactly how much you will be paying every month. This will bring you peace of mind and allow you to plan your finances in the short-term. If you choose a mixed mortgage charged at a fixed rate over 5 years and the rest at a variable rate, your monthly repayment will be the same for the first 5 years.
- Potential long-term savings once the period of the fixed rate stops and the variable rate starts. In this case, if the market interest rates are low your repayments could drop.
- Flexibility as it combines the best of both worlds, which will enable you to enjoy stability and potentially benefit from falls in interest rates.
What you should take into account
- A mixed mortgage has a time and a place. Falls and rises in interest rates are cyclical with bullish periods that, if historical records are anything to go by, end up falling. When interest rates increase, it is a good time to take out a mixed mortgage as your repayments will not vary in the first years, even if rates go up.
- Compare the initial fixed rate with the variable rate. This comparison will help you decide whether it is a good time to choose a mixed mortgage.
- Examine the conditions carefully. The rate of interest is a figure that always grabs the most attention and is really important. However, you should always ask yourself what other aspects of a mortgage could make a difference. What proportion of the house price is going to be financed? Is there an arrangement fee, or a partial or total repayment charge?
Mixed mortgages are a product that have become extremely popular over the past months because they provide a loan to buy a home to people who would perhaps find it more difficult to do so under pure fixed- or variable-rate schemes. MoraBanc is the first Andorran bank to launch this product. Further details about the terms and conditions are posted HERE.
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