2. When should you opt for a variable interest rate?
Most of our clients opt for a fixed interest rate term of 10 years. For many Dutch buyers, security appears to be more important than the option of benefiting from an even lower interest rate. However, it can be more advantageous to choose a variable interest rate mortgage in some situations.
Briefly, these are the considerations when choosing between a variable or fixed interest rate:
Variable interest rate:
- Do you expect the interest rate on your mortgage to fall? Then you are better off going for a variable interest rate rather than a fixed interest rate. Your interest rate will then fall too.
- Do you expect to be able to pay off part of your mortgage quickly, e.g. by means of a gift or release of equity on your old property? In that case it can be advisable to opt for a variable interest rate as well, because you can pay off your loan without a penalty.
Fixed interest rate:
- Do you expect the interest rate on your mortgage to rise? Then benefit from current low interest rates and opt for a mortgage with a fixed rate term. This means you will not be affected by potential increases in future.
- Is the desired value of your mortgage close to the maximum mortgage sum? In that case it is also better to go for a longer fixed interest rate term. For fixed rate terms from 10 years, the maximum you can borrow is determined by the actual interest rate as a reference rate. For shorter terms, or a variable interest rate, a reference rate of 5% applies. The maximum you can borrow is thus considerably lower.
Average mortgage interest rates have continued to fall in recent years. People who opted for a fixed interest rate term have therefore been unable to benefit from this.
However, we cannot assume that interest rates will keep falling. Now that the economy is picking up again, interest rates will probably increase. But this remains a gamble and not a certainty, even for seasoned economists! Mortgage advisors will therefore often advise you not to go for a variable interest rate, but to opt for a specific fixed interest rate term instead.