The mortgage dilemma: variable or fixed? How to manage rising monthly payments

The variable rate has long been popular thanks to low interest rates and a favorable economic environment. However, this has changed recently and many borrowers are finding themselves in a difficult situation. In this article, we'll look at the challenges of variable and fixed rates and explore solutions for managing rising monthly payments.

Variable rate challenges

For much of the last decade, variable rates were attractive to prospective homeowners because of the low interest rates they offered. However, in the last year or so, the situation in the mortgage industry has changed due to several factors such as COVID, the war in Ukraine and inflation. These events have forced the European Central Bank to raise its interest rates, forcing banks to adapt. Recently, the variable rate reached 3.53% and forecasts are not optimistic, with an increase expected by 2024.

What about the fixed rate?

While the variable rate has increased, the fixed rate has also increased. For new borrowers, this means that their ability to borrow has decreased. It doesn't matter which rate you choose, that's a fact. So should you hope for a return to lower rates and go for an adjustable rate? Or opt for a fixed rate for more security? One mortgage expert suggests going for the fixed rate because the financial markets are too unstable to take the risk of the variable rate.

How to better manage your monthly payments?

Households that already have an adjustable-rate mortgage have seen their monthly payments increase. Faced with this exceptional situation, there are solutions while waiting for better days.

• Repurchase of the loan and extension of the loan period: According to one expert, the repurchase of the loan combined with the extension of the loan period can be a good option. The repurchase of a mortgage loan consists in the repurchase of the current loan by another bank offering better financing conditions. Depending on the file and the bank, the repurchase may involve additional costs, which are often covered by the new bank.
• Renegotiation of the loan: Banks are also open to renegotiating loans to reduce arrears. They also lose money when payments are late. To avoid this, banks renegotiate loans, fix interest rates and extend the term of the loan.

Conclusion

The choice between a variable and a fixed rate depends on several factors, including the economic situation and the outlook for interest rates. It is important to weigh up the risks and benefits of each option before making a decision.

In today's uncertain economy and rising interest rates, it may make sense to choose a fixed rate for added security. However, every situation is unique and it is important to consult a mortgage expert for personalized advice.

For those already locked into a variable rate mortgage and facing rising monthly payments, there are solutions to ease the financial burden. Consider discussing with your bank the possibility of buying back your loan or renegotiating the terms of your loan.

Ultimately, it's important to stay informed and keep a close eye on the financial markets and interest rates. This will help you make informed decisions about your mortgage and manage your finances better in these difficult times. Don't hesitate to seek expert advice and explore all the options available to you to ensure you make the best choice for your personal circumstances.

If you would like to know more about this subject and find the best conditions for your mortgage, please contact our partner Creditsimmo.lu. Their team of experts is here to help you save money and get the best deals possible. Take the step now and talk to them to improve your financial situation!