Repayment of variable rate credit: how does it work?
It is the bank that reviews the credit rate. This rate varies according to an index called Euribor, on which banks. Euribor varies rates periodically, every 3, 6 and 12 months on average.
Why choose a variable rate for your mortgage?
A repurchase of variable rate real estate loans makes it possible to take advantage of the fluctuation of these rates, and, in general, to see its monthly payments decrease at the same time as the rates.
The rates are generally less important when signing the contract (unlike a fixed rate).
The system is more flexible: it is sometimes possible (but it depends on the organizations) to convert its variable rate mortgage purchase agreement into a fixed rate contract.
The capped rate makes it possible to set a limit to the rate increase: thanks to the capped rate, the monthly payments are capped, but it must be kept in mind that this rate is more expensive when the contract is signed than a variable rate. .
Unlike a repurchase of fixed rate mortgage, it is possible, with a variable rate, to repay a loan in advance , in particular to guard against a too high rate increase, or to sell its property before the end of the year. credit.
What are the disadvantages of a variable rate mortgage purchase?
The variable rate, as its name suggests, can sometimes be a little vague and risky: if the rate falls, the credit will become cheaper, but if it goes up, the opposite happens.
The total cost of credit redemption therefore becomes impossible to evaluate, which is not very reassuring. Read also Real estate loan redemption rates However, this type of loan can be interesting if fixed rates are high. In this case, we can assume that a decline will emerge but it is often a bet on the future! How, indeed, be sure that rates will go down? And in how long? We can only repeat, the variable rate of a mortgage is unstable.
How to limit the risks inherent in the subscription of a variable rate mortgage?
There are fortunately some precautions to take to manage and limit the uncertainty factor related to the subscription of such credit. These include:
- The duration of the loan: if borrowing for a short period when the starting rate is low, or for the purpose of reselling the property quickly.
- The existence of a cap on the interest rate (thanks to Capé).