Mortgages are an important part of the economy. If you choose the right home loan, it is of great importance to your finances. Choose from 3 ways to decorate your home economy.
Who determines the interest rates on the mortgage?
If you choose the right loans with a risk that suits your personal finances and your temperament, you can use interest rate developments in society to get a better economy. It is partly about making use of the fact that interest rates rise and fall over time, and exploit the difference between the variable (typically semi-annual) interest rate and the fixed interest rate (typically the 20 or 30-year bond yield).
The movements in the interest rate simply depend on the growth in the world and Europe, and partly on how Denmark manages its economy. The difference between the variable and the fixed interest rate expresses the expectations of how long-term interest rates will develop in the long term.
The interest rate structure thus expresses trends for the development of the national economies, and it is this development that you can make sure the positive influence on your private finances.
Choose from 3 ways to customize your mortgage. Choose the option with the risk that fits your finances and your temperament.
Fixed or variable rate – what type of loan should you choose?
Mortgages running in roller coaster
Do you love when it goes up and down quickly? Always choose the mortgage with the shortest interest rate adjustment period – this is probably the cheapest long-term mortgage. Unfortunately, it is also uncertain both when it comes to the price of the loan and the effect on your personal finances. Over the past 20 years, the interest rate on a one-year adjustable-rate loan has fluctuated by 6 percentage points.
Historically, there have been very few periods when this type of loan has not been most advantageous. But be sure to consider whether you can endure the risk in your finances and whether the possibility of interest rate fluctuations can ruin your night’s sleep.
How to choose the cheapest mortgage loan
Mortgages with strap and braces
Are you taking no chances? Always choose fixed interest rates on your mortgage, but be sure to take advantage of the conversion right on your mortgage. As interest rates rise and fall, you can convert your mortgage loans – either to lower interest rates or to raise interest rates to lower residual debt. You must be very patient if you choose this strategy. For the past 20 years, with a loan of DKK 1 million, you only have to convert 3 or 4 times.
If you consistently choose a mortgage with a fixed interest rate, your personal finances are always safe, but your interest expenses are also higher than if you had a variable-rate home loan.
Make money from your mortgage
Mortgages that run fast with seatbelts
Do you prefer the golden mean? Choose 2 home loans and combine variable and fixed interest rates in your loan strategy. Take a variable mortgage loan that you are repaying to reduce interest expense quickly. Combine with a fixed-rate loan with a maturity of 30 years – possibly without installments. In that way, you put security into your finances and open up the possibility of reducing the residual debt if interest rates rise.
If you choose to combine a fixed rate and a variable rate mortgage, you can be sure that it is not the best solution, but you also know that it is not the worst.
How do you choose the right mortgage loan?
So when choosing a mortgage, you should not guess whether the interest rate will rise or fall. With a rewrite of Storm P, we can say that it is impossible to predict – especially about the interest rate.
Instead, think about how much risk you want in your finances. Which of the three options is best for you depends on your finances and how you are at risk.