Fixed-rate or variable-rate mortgage
The interest rate is the price banks charge for lending money. Choosing a fixed, variable or mixed-rate mortgage will depend on which is the most favourable option according to factors such as changes in interest rates and the repayment period.
Types of mortgage loans
Both the interest rate and the monthly payments remain the same over the loan term.
- Advantages: you know in advance exactly how much you will pay each month, without having to worry about interest rate fluctuations.
- Disadvantages: when fixed-rate mortgages are arranged, the rate of interest set is usually higher than for variable-rate mortgages. The mortgage repayment period is usually shorter at approximately 20 years.
The interest rate will be reviewed every six months or annually and will differ according to the changes in the benchmark rate. It is usually expressed as the sum of this rate and a constant percentage, such as EURIBOR +2.1. No downward limits will be established and the interest will not be negative.
- Advantages: when the initial rate of interest is agreed, it is usually lower than that on fixed-rate mortgages and longer repayment periods are commonly offered ranging from 20 to 30 years, or even more.
- Disadvantages: with a variable interest rate your repayments could be higher if interest rates rise, although you will benefit if they fall.
For mixed-rate mortgages, a fixed interest rate is set over an initial period of time and then a variable rate is applied. Repayments could rise or fall depending on the changes in the benchmark rate used to calculate the interest rate.
Since the entry into force of Law 5/2019, in mortgages at a variable rate of interest, it is not possible to set a limit on the lowering of the interest rate.
Maximum and minimum rate limits (known as “floors” and “caps”) were usually included in variable-rate mortgage loans.
The clauses limiting a downward change in interest rates or “floors” are always applicable as long as you agreed them with your bank and they were included in the mortgage contract. Banks are responsible for ensuring that customers are provided with clear information regarding their existence before signing the mortgage contract and executing the public deed of sale, and specifically regarding the consequences of their application. The same principles apply for clauses limiting an upward change in interest rates or caps.
Find out more about floor and caps in our 2017 Complaints Report (in Spanish) (125 KB).