Floating rate mortgages have a particular operating mode where the interest rate may vary over time. What are the advantages, disadvantages, and pitfalls to avoid, Captain John helps you to see clearly on immo variable rate loans.
How does the floating rate immovable loan work?
The principle of variable-rate credit (also called the adjustable-rate) is based on a benchmark index, which is indexed to short-term European financial market rates, as well as a fixed margin determined by the bank according to the profile of the bank. borrower, between 1% and 3%. The most commonly used indices are Euribor 3 months, 6 months or 12 months.
As for the specificity of the rate of variable mortgage credit, it is the fact that the rate is likely to move down or up during the repayment period of the loan. This development is likely to lead to an increase in monthly payments, or even monthly payments and the duration of the loan.
The more guarantees you give, the more the bank or credit institution will make an effort and offer you a rate close and therefore lower!
Solutions to limit the variation of interest rates
It should be noted, however, that there are various solutions to reduce the risks of a variable loan rate.
The adjustable-rate mortgage capped
It is thus possible to opt for a capped variable rate credit, which can limit the evolution, as much when rates rise, as when rates fall or both. For example, a rate of 4% capped + 1% / – 1% means that the rate of the loan can not fall below 3% or climb above 5%.
Capping at maturity
It is also possible to choose a ceiling at maturity. In this case, the maximum amount of the monthly payment can be determined in advance. However, if the maturity amount is limited to this feature, the duration of the borrowing may be lengthened in the case of an increase in the benchmark.
What are the benefits of the variable rate?
The main advantages of this type of loan are:
- Take advantage of possible credit rate cuts, although this is also its main limit, as the trend may be on the rise;
- Obtain a rate generally lower than in the case of a fixed rate immovable loan;
- Take advantage of the absence of penalties on early repayment.
Unlike fixed-rate loans, variable rate loans do not give you visibility into the future and therefore offer you less security in terms of anticipating and adjusting your budget.
Compare real estate loans to find the best rate
A real estate credit simulation on Captain John can help you find the right Captain John buy your home. Thus, you may be offered a variable rate mortgage that you can compare to other real estate loans to find the solution that suits you best.
In the midst of the multitude of market offers, comparing different quotes will allow you to find the ideal cheap home loan for Captain John acquisition. Keep in mind that you must make your choice by choosing the cheap home loan that best suits your project, your budget, and your profile.
Traps to avoid
Vigilance is essential when subscribing to a variable rate loan. To seduce new customers, the various organizations do not hesitate to offer appealing rates particularly attractive not respecting the indexing rule on European indices. These real estate rates will then be increased on the first revision. It is therefore essential to know the benchmarks before signing a variable rate offer.
For floating-rate loans as for fixed-rate loans, the rule is caution when signing the contract. It is indeed important to read the contract carefully before signing it and to ensure the content of any clauses, like the clauses relating to the transformation of a variable rate into a fixed rate.